When we study macroeconomics, the easiest and first approach is to analyse closed economies. These are defined as countries that are self-sufficient and autartik, meaning they do not trade with other countries, and rely only on what they produce. There is a widely used analogy by Economics professors: Robinson Crusoe’s island. If we think about it, Robinson Crusoe was unable to trade, and its consumption and production were closely related. This one-man economy is the easiest way to understand closed economies.
In this Learning Path we’ll learn about basic concepts needed in the study of macroeconomics. The use of a closed economy is for simplicity’s sake.
Getting to an equilibrium:
Supply and demand, probably the two most important concepts in Economics;
Market clearing, or how the equilibrium is reached;
Cobweb model, a strange yet realistic phenomenon.
The IS-LM model:
John Maynard Keynes, considered as the father of macroeconomics;
John R. Hicks, which made further developments to Keynes works;
IS-LL model, Hicks’ model derives from Keynes’ “General Theory”;
IS-LM model, an improved IS-LL model, widely known nowadays.