Keynesian I G NX ? ? ?

Keynesian (1936) also postulated another growth theory where public spending is seenas an exogenous factor in determining growth through its multiple effect on aggregatedemand. Keynes analysis is made using a conceptual AD-AS framework in an openeconomy.Y C I G NX ? ? ? ?………………………………………………… (11)Where Y is Aggregate Output, I is Investment, G is Autonomous Governmentexpenditure, NX is Net Exports (exports minus imports) and C is AutonomousConsumption. .From the above-stated equation, all the variables are positively relatedto Output. This means that, any change in Government Spending will affect Output andshift the AD curve depending on the strength of the multiplier.Autonomous consumption can be further broken down into an autonomous and inducedpart shown below as:C a bY ? ? d…………………………………………………… (12)Where a is autonomous consumption and Y d is disposable income. By totallydifferentiating the Autonomous Consumption function, we havedY da bdY dI dG d X M ? ? ? ? ? ? ( )……………………….. (13)dY bdY da dI dG d X M ? ? ? ? ? ? ( )………………………… (14)Now, assuming da , dI and d X M ( ) ? are constant:11dY dGb? ?? ? ?? ? ? ………………………………………………. (15)dYmdG b? ?? ? ? ?? ? ? ……………………………………………… (16)With m being the basic expenditure multiplier which explains how much aggregateoutput change as a result of a change in government spending. Keynes also explainedthe effect of government spending on economic growth in three propositions.? A rise in government expenditure will induce aggregate output to increase. Butthe extent of the rise will depend on the quantum of the expenditure multiplier.? The size of the expenditure multiplier will cause a tax increase to negativelyaffect aggregate output.? Either an increase in government expenditure or a reduction in taxes will causeaggregate output to increase by the size of the expenditure multiplier all otherthings being equal