A STUDY OF AN INCOME EXPENDITURE MODEL.

This article specifies a comparative statics model that can be embedded in a dynamic framework, and discusses the properties of the specific model proposed herein. Macroeconomics is concerned to a great extent with studying the properties of comparative statics models that are simple the short-run equilibria of dynamic models. A detailed analysis of a short-run model whose variables in IS-LM space are output and the market yield on equity has been presented. The outcomes obtained are completely consistent with the comparative statics results well-known to macroeconomics, although the results obtained here are more intricate than the ones normally derived because added factors, such as the effect of changes in the real value of money in the disposable income term, are considered. It is also demonstrated that as a larger number of factors are taken into account and more variables are made endogenous, the probability of the model being stable is enhanced. Finally, this model has the advantage that it can be taken as it stands and placed in a dynamic framework. This possibility of integration indicates that the standard models studied in macroeconomics, if viewed as momentary equilibria of dynamic models, are consistent.