The Practical Application and Marginal Expansion of Keynesian Model

Abstract

Recently, there have been a lot of discussion about how variable change will affect output, real wages, and the nominal values of stock in certain assumptions. This paper describes improved new Keynesian model in closed economy for showing the adjustment of different component. Firstly, it will discuss the condition when an increase in tax by using mathematical derivation and examine the change when a rise in nominal wage through the use of macroeconomic analysis, then it will analyze the process when changing the target interest rate. Lastly, it will provide some evaluations of these several conditions. The results of the studies indicate that while an increase in tax, the real wages will rise, output will decline and the nominal money stock will do the same. Besides, the analysis has revealed that when a growth in nominal wages will result in a boost in price level and nominal money stock, and production remains constant. Additionally, when the target interest rate is raised, output will fall, real wages will rise as a result of a declining price level and a fixed nominal wage, and the nominal money stock will drop. All these preliminary results throw light on real life scenarios of central banks and countries.