Principles of Economics/Keynesian cross

The Keynesian cross model depicts national expenditure. Actual expenditure, Y*, is equal to planned expenditure, Y^E at the equilibrium, which is also where the economy will operate. There is a recursive operation, as a form of Y is on both sides of both equations. The Y* curve always starts at the origin and goes at a 45-degree diagonal; the Y^E curve always intercepts the Y axis and has a slope less than 1.

Fig - 1. The basic Keynesian Cross model with one change.

The Keynesian Cross shows the basic multiplier effect. Because the two lines are slanted, and are often at very acute angles with one another, a small shift upward or downward in the Y^E curve will yield a much more significant change in equilibrium along the x axis.

The equilibrium is at: