A Teaching Model of the ‘Keynesian’ System (1969)

The purpose of these notes is to outline for teaching purposes a version of the ‘Keynesian’ model of income-determination in the short period. A feature of the model is that it can handle with very simple algebra the interrelations between the money, goods and labour markets, oligopolistic pricing behaviour and the different consumption behaviour of profit-receivers and wage-earners. The two key expressions are those for the short-run, equilibrium levels of real output and the rate of interest. The model is, if you like, ‘Ackley in Algebra’1 (although the treatment of the price level and the production function differs from Ackley’s). The preference for the use of algebra rather than geometry arises from the view that the ‘quadrant’ approach can mislead students, who may settle for mechanical drill; it may confuse them about the applicability of their results and geometry does not always bring out clearly the limitations of the methodology used. These dangers are more easily avoided, it is believed, when algebra is used.