Answer to Question #154269 in Macroeconomics for Rishini fdo

Question

What is the simple keynesian model?

Answer 1

In simple keynesian model we have two sectors.

1) Firms.

2) Households.

Firms spend all their income on factors of production which are provided by households. That is by paying rent, wages, interest and dividends.

On other hand household uses the revenue they receive on consumption of goods and services produced by firms, which goes to firms sector as income. Another portion of household revenue which they save goes to firms sector as investment and the last portion goes to government in form of taxes which finance government expenditure on goods and services produced by firms.