Macroeconomics › Section L · The Keynesian perspective › Topic L.2
Building blocks of Keynesian analysis and the multiplier
Why can a whole economy sit in recession with idle factories and willing workers? Keynesian analysis answers with two building blocks, weak demand and sticky wages and prices, and adds a third idea, the multiplier, which explains why spending shocks grow as they spread.
In this topic
- Two building blocks
- Why wages are sticky
- Why prices are sticky
- A macroeconomic externality
- Spending becomes income
- The expenditure multiplier
- Worked example: following the rounds
- Adding taxes and imports
- Worked example: closing a gap
- Common mistakes to avoid
- Key takeaways
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