Keynesian Cross Diagram

autonomous expenditure

5100

marginal propensity to consume

0.7

taxes

3000

potential output

13000

large format

Samuelson's Keynesian cross diagram is an attempt to capture the essence of Keynes' theory of effective demand. The blue line represents aggregate expenditure on domestically produced goods and services. Of all the components of aggregate expenditure, only the level of consumption is assumed to be a function of income; the other components are assumed to be autonomous. The red

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line expresses the accounting identity that aggregate expenditure is equal to national income. The model shows that a change in autonomous expenditure leads to a larger-sized change in national income, a relationship known as the multiplier effect.

Permanent Citation

Fiona Maclachlan

"Keynesian Cross Diagram"
http://demonstrations.wolfram.com/KeynesianCrossDiagram/
Wolfram Demonstrations Project
Published: September 28, 2007