Keynesian Cross
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Analyzing planned expenditures versus actual output using the Keynesian Cross
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I hate keynesian economics.
Do you still hate it?
I swear to god, you are at least five times better at explaining stuff than my economics teacher. In an entire week of school (like 5 lessons) she couldn't explain it as well as you just did!
Thank you so much for making these videos.
most challenging subject ever
Exactly
thank god this exist, i am using it so much
Peter has said repeatedly that he doesn't know exactly when the dollar crises will hit, but it will. If you measure the dollar against gold, it definitely has lost much of its market value. The important thing about that is gold is the default market money throughout history. Try again, Junior.
Thank you so much!!! You really have helped me a lot when I thought I had nothing that I could do to catch up for my economy classes.
no you tube this "1/4/2010 Peter Schiff On Fast Money: Dollar Collapse By 70% In 2010?" and u know was funny peter sells golds and accepts dollars. now think if the dollars was going to fall and gold is doing so well why the fuck is he trading gold for dollars. Try again Junior
Sorry, but only Lakshman and Ruobini said anything prior to the crash as far as I can see. And to say Austrians are Bearish is putting it mildly. I don't disagree with that. But the core reason for this is the Fed and their control over the money supply and interest rates. These, in the Austrian Schools understandings, are doom for the economy as they are not market driven. Central planning causes more trouble then good in their eyes because they themselves cause the bubbles.
I love your videos, hopefully I will pass in my macroeconomics exam because of you :) Thank you so much
I cannot get this. At 7:05 is the problem. Planned expenditures are lower than actual output...that sounds like you made more stuff than you planned to make, so why did you do that? If you have inventory piling up from that....well why didn't you stick with your plan? Not sticking to the plan led to an increase in output that nobody apparently wants, increasing your inventory.
Obviously I'm missing something major here....there's a connection not being made between plans and actuality that has got me all backwards and I cannot get oriented correctly. It seems like an assumption is being made that Planned expenditures = actual demand. As if, plans always equal eventual actual demand. Otherwise, I don't see why you plan on expending less, but end up making more, but can't sell the more that you made....well why in the hell did you make it then??
Yea it was truly confusing. Here is what you missed: planned expenditure and actual goods and services produced is not by the same people.
So it is really hard to know what and how much other want(or planned to buy).
It doesn't. You ended with Take care young man. I'm 34 for the record. Great. Thanks for doing 3 hours of homework for me btw lol
That's funny. Peter poors out strait FACTS in that video. "The fed has created a currency crises. It might even hit in 2010. Might hit in 2011. But when the dollar collapses... it will go down 50, 60 or 70 percent." Really? This is your argument? All these facts he and you think him saying a collapse MIGHT happen in 2010 is proof of error? You're not even looking at gold value, which he trades in dollars then puts right back into gold. Just stop already, Junior. You're embarrassing yourself.
How does positive unplanned investment occur? wouldn't the firm still plan for that amount of inventory to be produced? but they just had excess? i dont understand where that amount comes from if it is already accounted in planned investment spending
ymkamara420 The only reason the USD hasn't depreciated is because it's the worlds reserve currency and oil has to be bought in USD. Once this ceases to be the case, the USD will depreciate as Peter Schiff predicted. The underlying logic behind his original prediction made sense, he just didn't take into consideration the impact of the aforementioned factors.
LOL. I love you clowns I really do. According to youe logic the Japanese Yen should have crashed a long time ago. They are not the worlds currency, oil doesn;t have to be bought in yen and they have been doing QE since the 90's. But hey keep following Peter. Please invest with him.
An increase in the money supply in theory leads to a depreciation of the domestic currency. For example, look at the Mundell-Fleming model.
anarki777 Depreciation is not the same a currency collapsing. What is with peter schiff followers and false equivalences. smh Like I said invest with him.
anarki777 "In theory" case and point
Wait, did Keynes not reject the whole idea of "market factors gravitate back into an equilibrium"? Why was this model attributed to Keynes?
yeah! You got the reason. In fact this is NOT keynesian but it's the neokeynesian model by neoclassical synthesis made by Samuelson and Hicks. True heirs of Keynes are Postkeynesian economists!
One important thing in this model is that there is NOT absolutly any dynamics!
The 45 degree line is simply x = y
salman khan zindabad!!! i'm thrilled that you have put forth the efforts that you have.
Here's a tip for those like me that feel like the producing more / producing less feels backwards: interpret the factual expenditure (dotted white line) as the initial behaviour of producers, and the planned expenditure (yellow line E^p) as the behaviour of consumers.
thus, in Y1, producers have made way more than consumers are actually wanting to buy and producers' supplies are stacking up unsold.
in Y2, conversely, consumers are hankering for way more than the producers thought to make and their supplies are selling faster than expected. hope this helps!
I agree, that solves the problem. But, can you explain, why did you interpret it that way?
@@radicalpotato666 I was wondering the same thing
@@radicalpotato666 Ok I think I may have come out out with one way to put it.
1)The difference between actual and aggregate expenditure is that the first includes unplanned investments (inventories).
2)Income (or output) always = actual expenditure
3)Then
If actual expenditure > aggregate expenditure, it must mean that inventories are increasing, hence output is exceeding expenditure.
I think that matematically we could say that equilibrium is when aggregate expenditure = actual expenditure, which must mean that
(planned investement) =( planned investments + unplanned investments), therefore unplanned investments must be = 0.
Any point above equilibrium has unplanned investment > 0, therefore inventories are increasing and there's an over production
Yeah... you still don't have a clue. Bother to read any articles from the Austrian school criticizing Greenspan? I'll give you a hint. There's more then a few. Same with Ayn Rand. You are assuming because there are connections between people that somehow these thinkers are all part of the same bunch. Just google "rothbard and ayn rand". The first two links that come up are letters praising Ayn in 57 then harsh critiques in 72. All free market thinkers praised Ayn when her book came out.
Here's Rothbard talking about Greenspan in 89 /watch?v=zLj2Zxv5Kzg
I'm not even going to bother finding you articles because linking isn't easy in TH-cam. Also, I'm not going to do your homework for you because IT'S ABSOLUTELY RIDICULOUS THAT YOU STILL THINK YOU HAVE AN ARGUMENT. GO DO YOUR OWN HOMEWORK. ITS NOT HARD.
please dont to fast to speak! i dont understand. speak fluently good and right
you just made my life a lot better
Yes, you need to do better than give me post hoc scape goating and revisionism and vague accusations by people jealous of his success. In 2005 the whole business market was going crazy that was why there were trillions of dollars in credit default swaps sold and by 2006 even the insurance companies were insuring themselves. Goldman Sachs was already dumping the CDO's on pension funds. The subprime loans were not set by the Fed, they were driven by the over the counter market.
Not sure I am 100% with them (or any school of thought) and I have some issues with the implications of Austrian thought but yeah, since the 80s I think there is validity to it. Also the ideas in Hayek's Road to Serfdom, I never used to believe but now, seems he was also right. I think Keynesians make some decent points about welfare and various things, but economic planning is wrong and that's where Austrians are right
Hi thank you for this informative video :D, I just want to tell you if you can add the subtitle in french to all your videos so that really can be easy to learn. Thank you so much
Thank you Khan Academy!!!
Keynesian Cross? More like "With Khan Academy, you're never lost!"
awsm thanks!! helped me understand properly
Very helpful! Also for a german University student. Thanks
why is aggregate income considered national income? Cannot aggregate expenditure be considered national income?
I know she wasn't an economist. She wasn't anything but a pretentious pseudointellectual romance novel writer. Nevertheless we are talking about philosophical alignment. Ayn Rand would have never taken anybody but an Austrian school (more broadly neoliberal) economist into her inner circle.
SO now I have given you an article from the Von mises institute and Milton Friedman and you have given me hot air.
If you knew more about Rothabard you would know that he had a bitter estrangement from Rand's cult of personality and it speaks well of him. But he never criticized her economics. I have seen that play and it is funny but all pretentious no nothing Austrian purists are funny.
Now you are probably coming to the conclusion that I am a Keynesian or I dismiss the Austrian school. I don't. I am just not a simpleminded fanatic that thinks the world can be fixed with one idea.
"There's more then a few."
Go ahead and cite 3 three articles before the start of the financial crisis criticizing Greenspans ideology. Like I said. The Austrian economists love scape goating and revisionism. Rothbard did criticize him, but not for his ideology but instead for working with the other side.
I gave you one from the Von Mises institute.
i have some confusion regarding the Ep variable that Sal has taken in my opinion it is planned expenditure or preplanned goods and services ready for supply and the white dotted line is the actual consumption or demand so when aggregate demand rises shouldn't there be a shortfall of inventory as planned expenditure is below the actual demand and vice versa in the second case
Sorry, but you're completely false in your statement. Show me any one besides Krugman (who barely even got it right). You'd be lucky to find a handful. It's still a general beliefe amongst modern economists who apply Keynesianism to their models that the bubble was an unpredictable condition of the markets. EVERY Austrian economist was warning of the bubble. ALL of them.
/watch?v=3ZLIt4HME_s Here's Peter Schiff talking about the housing bubble inflated by the Fed from Greenspan. Seriously. Do I need to do more for you?
/watch?v=jj8rMwdQf6k How about this. Peter giving a speech at Western Regional Mortgage Bankers Conference in Las Vegas in 2006 continually citing the Feds low interest rates for creating the housing bubble that no one even saw at the time except the Austrians like him.
She wasn't an economist. Her economics were bassed on others. Rothbards is a thorough view of Austrian Economics where as Ayns is a general Laisse Faire view. Her economics don't have a full view and lean on partnered ideals. There's nothing secret or sacred here. The fact that you still equate Ayn to Austrian Economics shows me you don't fully understand the scope of the Austrians and their impact on economics. Particularly Rothbard and Mises. The argument for Greenspan is even more laughable.
LOL, Greenspan was a protege of Ayn Rand and part of her "inner collective". He met and befriended Murray Rothbard there. He taught classes in the "economics of a free society" he wrote economics articles for Objectivist publications and took seminars from Ludwig von Mises. The Free Market, Jan 2001 Vol 19 (1) "Greenspan's Austrian Roots"
Like all ideologues you don't bother checking your facts.
So did plenty of Keynesians. Austrian Economics is a sham; libertarians pretending that good economics comes from imagining what they'd like to be true, and conducting no empirical research. There are many reasons why it has practically no academic support, but primarily the reluctance to do research and the understanding of it as merely libertarian political advocacy are sufficient.
Yes the Austrians always disown their failures and find a scape goat. I am sure you find it quite infuriating to have your faith based beliefs rattled.
You say there are now a "Million" articles. I am still waiting for three that are before the crisis say 2001 and accuse him of something other than pragmatic compromise or having the charisma of a wet mackerel?
I think you're focusing too much on what people say. Greenspan might have thought of himself as an Austrian economist, others might have thought of him as such, but the fact is, Greenspan enacted many policies which were against Austrian ideas. I find it kind of ridiculous to claim that he was an Austrian based on how many papers The Mises Institute wrote about his failures. He did fail, whether they write about it or not.
He did fail, but his biggest failing was not keeping interest rates low, it was lobbying for no regulations on over the counter financial instruments which created a massive feeding frenzy of speculation and market manipulation. I am not saying that the Kenseyians were right on this either. Both schools of thought when used as stand alone ideologies fail. They need to be used judiciously. Ravi Batra, Brooksley Born, Raghuram Rajan and several others not tied to a school did predict the collapse.
Austrians don't believe in the Fed controlling interest rates. Every one in the Austrian school went crazy when Greenspan held rates low. "Austrian economists such as Nobel laureate F. A. Hayek largely advocate the idea that malinvestment occurs due to the combination of fractional reserve banking and artificially low interest rates" - from the Wiki.
So tell me again how "Austrian Economic principles" caused the bubbles? Why were they the only ones warning about the problem? It was Keynsianism
You can read all their literature for free on the Von Mises website. Just google Von Mises institute. There is literally a plethora of reading there.
I don’t understand why G and I are not functions of GDP/Income here?
I just gave you 4 videos of prominent Austrians addressing the Fed and Greenspan PRIOR to the bubble popping. And I'm the "loser" and "stupid"? Cool. Good luck in life ending debates with name calling.
/watch?v=KIk5C2qsRH8 Rothbard wrote a play (his only one) addressing Ayns Cult. This is it put on for his 60th birthday.
Tuesday, January 31, 2006
Milton Friedman: Greenspan Ruled with Discretion
Milton Friedman is impressed that Alan Greenspan was able to achieve price stability without committing to a strict money rule: ...
"His performance has indeed been remarkable. There is no other period of comparable length in which the Federal Reserve System has performed so well."
When build ups occur two things occur simultaneously. Actual expenditure is lower than planned expenditure. Actual production is greater than planned expenditure.
why are I & G horizontal but C has a positive slope?
Assumption
lol, how young do you think I am? Ok, I'll dig a little harder, though I've already looked. You still only found the handful I was talking about, however.
What circular flow of economy is he referring to? Where does this so-called circularity exist?
+Alec BUSCEMI a year after, did you already sorted this out? just curious.
His degree is in business, this is primarily what he studied in college,
A lot more easier to get without the numbers
Hayek>Keynes
Jack Parker Objectively
Chum Dog indeed
lol, Greenspan as an Austrian, eh? Yeah... you don't have a clue.
Ironically, DotCom bubble and mortgage crisis happened because of Austrian Economics principles...
To me this seems backwards!! If actual demand is higher than planed, wouldn't there be more of a "shortage" ( if you wanna call it that)
Think of it this way, E^p is planned and the other line is actual inventory.
If E^p is below the actual inventory, which means plan inventory is below the actual inventory then companies would need to cut down on their inventory. Which means it'll have to move back to the equilibrium point.
If you plan to make 50 but make 70, you have a surplus of 20. You have to cut down inventories. And if you plan to make 50 but actual inventories is 70, you're at a deficit of 20. Business have to invest more or hire more workers.
ive got e fundamental question: how can Y=C+I+G=Output be the same as Ep=C+I+G and simultaneously be in two different axes? would appreciate an explanation
+Andi Dyla ones actual and ones planned
YOU are good, Thank you :)
Little question ... is Aggregated demand AD the same as Aggregated expenditures? The definition is the same the Sum of C, G, I and X-M or NX
I had the same question
**** Austrian economics. It is Hooverism,Austerity and Depression. It has never worked.
Thank you so much for these videos.
Super Video !
perfect
At some point in the future, can you go through some of the data that is in the FRED economic database? I think it could be helpful to translate a concept like "consumer consumption" into the actual data that you could find on FRED.
HERO
so constants just increase they intercept
but what is the Keynesian cross?
This is great!!
The guy you were replying to was me. You're a very bright guy resorting to name calling aren't you? Good luck in life.
Thanks
There's a lot to learn from this guy but it's so much better to use TH-cam to watch his videos so you can speed them up and thumbs down the ones that offer nothing.
i like the way he teach, thankyou
i ruv yu rongtime
At 4:00, the sloped pink line meets the vertical spending axis, where spending is greater than zero, and income is zero. That's complete NONSENSE. You can't spend $1 without producing $1 of income.
Not true. This level of autonomous consumption is financed through debts, which households finance through 'dissaving' (withdrawing already-accumulated savings) or through borrowing. Let's face it, you've got to eat!
This is somewhat backed up by neoclassical economics' own consumption function, which factors in current *wealth* (accumulated value/assets) and future incomes, as well as current incomes.
Will Wearden Did you flunk grade school math? Khan Academy shows E = C+I+NX+G. If E = $1, then C+I+NX+G must = $1. That's what the equal sign means. And I don't care where the "autonomous" $1 came from, spending that autonomous $1 MUST produce $1 of income, not $0. And if autonomous spending of $1, did produce $0 income, you can't multiply $0 income into anything but ZERO, and everything would stop there. The graph is COMPLETE NONSENSE.
There is a difference between stocks and flows - stocks of value stored in assets/currency and flows of current income/expenditure. Dissaving is conversion of accumulated past income (wealth) into present expenditure. Borrowing is similar, but against others' wealth. Both are made with some degree of anticipated future income.
The Keynesian Cross shows how planned expenditure ends up reaching an equilibrium with current levels of income.
Will Wearden The Keynesian Cross is bullshit. It shows spending which produces zero income. That's impossible. $1 of spending, must produce $1 of income.
Well, that's why the actual outcome is where the Planned Expenditure curve crosses the Income=Expenditure line!
I've already finished the video. Therefore if you're reading this comment, chances are I know more than you do about the Keynesian Cross.
Down with Keynesianism. Up with Austrian Economics! They've been right time and time again. They predicted the Dot Com bubble, mortgage crises and now credit crises. In detail mind you.
You just safed my life
I hate his voice. He messes up every 2 minutes. Also does he really have to waste my time by changing the color every 2 seconds.
+Katie Thompson What a way to show appreciation! Perhaps you should dig a hole and stay there. What a sad existence.
BK2911 Jesus people this is a comment section about macro Econ, not Pepe the frog
he has a nice voice and he's put all this time in you should be more grateful KATIE THOMPSON btw have you seen the new google earth it's amazing!!!
He may not be a perfect, but he's the Jesus of online education, saving all our souls from Common Core.
Low rate was set by Greenspan, one of the most fantical follower of Austrian school...