Teaching the COVID-19 lockdown using the Keynesian Cross
Sniekers,Florian
Sniekers,Florian
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.
Description
Funding Information: Comments by Jeff Campbell, Reyer Gerlagh, Bas van Groezen, Christiaan van der Kwaak, the editor, two anonymous referees, and seminar participants and students at Tilburg University are gratefully acknowledged. Publisher Copyright: © 2022 The Author(s). Published with license by Taylor & Francis Group, LLC.
Date
2023-01-19
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Keywords
Keynesian Cross, lockdown, multiplier, supply shock, transfers, A22 - Undergraduate, E12 - Keynes ; Keynesian ; Post-Keynesian ; Modern Monetary Theory, E32 - Business Fluctuations ; Cycles, E60 - General, SDG 1 - No Poverty, SDG 8 - Decent Work and Economic Growth, SDG 10 - Reduced Inequalities
Citation
Sniekers, F 2023, 'Teaching the COVID-19 lockdown using the Keynesian Cross', Journal of Economic Education, vol. 54, no. 1, pp. 38-59. https://doi.org/10.1080/00220485.2022.2144570