SummaryClosed economies are defined as countries that are self-sufficient and autarkic. A widely used analogy by Economics professors is Robinson Crusoe’s island, since Crusoe was unable to trade. This one-man economy is the easiest way to understand closed economies.
Getting to an equilibrium:
The IS-LM model:
- J. M. Keynes
- John Hicks
John R. Hicks was a British economist (1904-1989), professor at the London School of Economics, Cambridge University and University of Oxford. He took special interest on issues concerning microeconomics, growth, economic fluctuations and monetary theory. In his most famous work “Value and Capital”, 1939, Hicks referred to aggregation problems, interest rate, etc. It was also in this book where he developed further the comparative statics, the analysis in economics when describing two possible outcomes. His book “The Social Framework: an Introduction to Economics”, 1942, is a veritable treatise on structural analysis by means of social accounting.
However, Hicks is mainly known for the development of a general equilibrium model, based on J. M. Keynes’ “General Theory”, in which he analyzed four markets: goods, labor, credit and money, called the IS-LM model. This model, firstly named IS-LL, appeared in his article “Mr. Keynes and the Classics: a Suggested Interpretation”, published in 1937 in the journal Econometrica.
He was awarded the Nobel Prize in Economics in 1972, along with Kenneth Joseph Arrow, for his contributions to general equilibrium theory and welfare economics.