Teaching the COVID-19 lockdown using the Keynesian Cross

Research output: Contribution to journalArticleScientificpeer-review

Abstract

I present a framework to teach the macroeconomic effects of COVID-19 using the Keynesian Cross. I show that the rest of the economy suffers from a decline in demand once one sector of the economy is shut down and that the government spending and tax multipliers are smaller than usual. Fully insuring workers in the sector that is shut down cannot prevent a recession, but for the same aggregate transfers, such targeted income transfers do more to restore aggregate output than unconditional transfers. An extension to the (Formula presented.) curve shows that a lockdown results in deflation. These insights can be taught in an introductory or intermediate macroeconomics course.

Original languageEnglish
Pages (from-to)38-59
JournalThe Journal of Economic Education
Volume54
Issue number1
DOIs
Publication statusPublished - 19 Jan 2023

Keywords

  • Keynesian Cross
  • lockdown
  • multiplier
  • supply shock
  • transfers

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