8 Conclusion

In this OpenLearn course you have developed your understanding of how economists use models by exploring the construction and use of macroeconomic models to analyse the determination of income, and by seeing how the microeconomic analysis of firms adds yet another dimension to what economists do.

In Section 1, you were introduced to the founder of macroeconomics, John Maynard Keynes.

In Section 2, you learnt how the circular flow model can be used to show either actual or planned values of economic variables. In connection with this, you considered the difference between an identity (as used in the national income accounting system) and an equality (as used in the Keynesian theory of national income equilibrium).

In Section 3, you built up a Keynesian consumption function from its components of exogenous consumption and income-induced consumption, making use of the concept of the marginal propensity to consume.

In Section 4, you looked at the modelling of saving and investment, noting how investment and consumption together make up aggregate demand in the model of a closed economy with no government sector. You also learnt about the importance of the 45-degree line in analysing equilibrium.

In Section 5, you considered how equilibrium may occur at below full employment and how full employment may be achieved by a stimulus to aggregate demand. The macroeconomic analysis ended with Section 6, which showed you how fiscal policy can be used to stimulate demand, and taught you about the importance Keynes placed on the role of the government in leading economies to better outcomes.

Section 7 concluded the course by zooming in on firms and examining some of the major factors that determine their viability and competitiveness.