The macroeconomics section is organized historically.  The dates listed below are guided in part by publication dates for major works and in part by the failure of the Keynesian Model to emerge unchallenged from the 1960's and by inability of its challengers to account for the recession of 1982.

The Classical Model (1776-1935)

• The Classical Model largely follows the conclusions reached in Microeconomics.  The fundamental equilibrium is in the supply and demand for labor.  The Demand for Labor and Labor Supply, Income Taxes, and Transfer Payments are the major microeconomic references in the Classic Economic Models.

Keynesian Models (1936-1969)

• The Simple Keynesian Model, a vastly oversimplified view of the economy,  constructs an equilibrium without referring to the labor market.   The point of this exercise is to shows that the economy can be in an equilibrium that is far from full employment. 
   
• The Keynesian IS/LM Model shifts from the Classical Model's focus on the wage rate to a focus on long-term and short-term interest rates.  These interest rates are taken to be equal.  Income and the interest rate are the variables that adjust to achieve equilibrium.  The model is presented in two versions, one with fixed prices and one where the Aggregate Supply/Aggregate Demand extension adds adjustments in the nominal price level to the mix.
   
• The Mundell-Fleming Model adds the Balance of Payments (BP) curve to the IS/LM Model.  Equilibrium is reached by adjustments in the exchange rate, the interest rate, and income.
   

The New Classical Model (1970-

• Real Business Cycles shifts attention from nominal interest rates back to the real factors of production that dominated the original Classical Model.  By considering a "Robinson Crusoe" economy with only one representative agent, the model is able to explain business cycles without introducing even a nominal wage rate.

 New Keynesian Economics (1982-

The recession of 1982 reopened the debate about the real effects of nominal monetary policy, and the decade of the 1980's reopened the debate about the  stimulative effects of government budget deficits.  The Classic Economic Models collection  includes a recent reworking of the Keynesian Model:

• The IS/MP Model addresses a perceived shortcoming of the IS/LM Model by replacing the price level with the inflation rate and by replacing the nominal interest rate with the real interest rate.

References

Adam Smith, The Wealth of Nations, 1776.

John Maynard Keynes, The General Theory of Employment, Interest and Money, 1936.

John R. Hicks, Mr. Keynes and the Classics, 1937.

Milton Friedman, The Counter-Revolution in Monetary Theory, 1970. 

Robert J. Barro, Second Thoughts on Keynesian Economics, 1979. 

Robert J. Gordon, What is New Keynesian Economics?, 1990. 

N. Gregory Mankiw and David Romer, New Keynesian Economics, 1991.

Romanian translation of this page by Alexander Ovsov

 

Classic Economic Models

    Contents

Macroeconomics

Introduction
    Overview of Macro Models

Models in Chronological Order
    The Classical Model
    The Simple Keynesian Model
    The Keynesian IS/LM Model
    The Mundell-Fleming Model
    Real Business Cycles
    The IS/MP Model
    The Solow Growth Model

Financial Markets
    Utility-Based Valuation of Risk
    Mean-Variance Analysis:
        Risk vs. Expected Return
    Fixed Income Securities:
        Mortgage/Bond Calculator
    Growth Investments:
        Present Value Calculator

Microeconomics

Introduction
    Overview of Micro Models

Supply and Demand
    Basic Supply and Demand
    Who Pays a Sales Tax?
    The Cobweb Model and
        Inventory-Based Pricing

Theory of the Firm
    Perfect Competition
    Monopoly and
        Monopolistic Competition
    Price Discrimination
    The Demand for Labor

Theory of the Consumer
    Two Goods - Two Prices
    Intertemporal Substitution
    Labor Supply, Income Taxes,
        and Transfer Payments

Resources