The Keynesian

Model of
National Income
Determination
National income determination

The component parts

of the model
 The 45° line
Cd, W, J
Cd + W (=Y)

£100bn

O £100bn Y
 The consumption function
120
Y
C
100
Consumption (£bn)

∆C = 8
80
∆Y = 10

60
mpc = ∆C / ∆Y
50
= 8/10
40 = 0.8

20

0
0 20 40 50 60 80 100 120 140
Y (£bn)
 The consumption of domestic product
120
Y
C
100
Consumption (£bn)

80
Cd
60

40

20

0
0 20 40 60 80 100 120 140
Y (£bn)
 The W function
Cd, W

Cd + W (=Y)

O
Y
 The W and Cd functions
Cd, W

Cd + W (=Y)

Cd

O
Y
 The W and Cd functions
Cd, W

Cd + W (=Y)

100 Cd

70

30

O 100 Y
National income determination

Equilibrium
(a) W = J
 Deriving equilibrium national income
Cd, W, J

O
Y
 Deriving equilibrium national income
Cd, W, J

a
J
b
O Y1 Y
 Deriving equilibrium national income
Cd, W, J

W
c

d J

O Y2 Y
 Deriving equilibrium national income
Cd, W, J

x
J

O
Ye Y
National income determination

Equilibrium
(b) Y = E
 Deriving equilibrium national income
Cd, W, J

Y = Cd + W

O
Y
 Deriving equilibrium national income
Cd, W, J

Y = Cd + W
E = Cd + J

Cd
J

O
Y
 Deriving equilibrium national income
Cd, W, J

Y = Cd + W
E = Cd + J

Cd

e
W
f

O Y1 Y
 Deriving equilibrium national income
Cd, W, J

Y = Cd + W
g E = Cd + J

h Cd

O Y2 Y
 Deriving equilibrium national income
Cd, W, J

Y = Cd + W
E = Cd + J

Cd
z

x
J

O
Ye Y