Principles of Economics/Keynesian cross

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Fig - 1. The basic Keynesian Cross model with one change.

The Keynesian cross model depicts national expenditure. Actual expenditure, Y*, is equal to planned expenditure, Y^E at the equilibrium, which is also where the economy will operate. There is a recursive operation, as a form of Y is on both sides of both equations. The Y* curve always starts at the origin and goes at a 45-degree diagonal; the Y^E curve always intercepts the Y axis and has a slope less than 1.

The Keynesian Cross shows the basic multiplier effect. Because the two lines are slanted, and are often at very acute angles with one another, a small shift upward or downward in the Y^E curve will yield a much more significant change in equilibrium along the x axis.

The equilibrium is at:

 \frac{a - T + I + G + X - M}{1 - b}