Chapter Nine: Module Intro -- The Income-Expenditure Model
When the world was in an economic depression in the 1930s, contemporaneous economic theory was incapable of explaining what had happened--and what was needed--to pull economies out of the depression. In 1935, British economist John Meynard Kenyes published his book The General Theory of Employment, Interest, and Money. Keynes offered an explanation as to how an economy could become stuck at such a low level of output. He also suggested ways that governments could pull economies out of depressions. The essential elements of Keynes' theory are embedded in the Income-Expenditure model that we discuss in this chapter.
We recommend that you read the lecture notes first, then take the on-line quiz. Finally, read the module summary to reinforce the main concepts.