1. THE KEYNESIAN MODEL Lecture 4: Introduction to Keynesian Model: Derivation; National Saving Identity. Lecture 5: Multipliers for spending & exports; the transfer problem. Lecture 6: Large-country model; International transmission under fixed vs. floating exchange rates Lecture 7: Adjustment of a CA deficit via expenditure-reducing vs. expenditure-switching policies Lecture 8: Monetary factors

2. Imports & exports depend on income: Y TB + 0 - as does consumption: Keynesian consumption function assuming E & Y* fixed, for now. where slope = -m ≡ - marginal propensity to import TB falls in expansions… …and rises in contractions API-120 - Professor Jeffrey Frankel, Harvard University

3. Trade balance rises in recessions, API-120 - Professor Jeffrey Frankel, Harvard University falls in expansions

4. Determination of equilibrium income in open-economy Keynesian model whereand Now solve: API-120 - Professor Jeffrey Frankel, Harvard University

5. Derivation of National Saving Identity Income ≡ Output (assuming no transfers) Y ≡ GDP S + (T-G) ≡ I + X – M / / NS ≡ S + BS ≡ I + TB National Saving Identity C + S + T ≡ C + I + G + X -M

6. API-120 - Professor Jeffrey Frankel, Harvard University US National Saving, Investment, & Current Account as Shares of GDP, 1949-2019 Trend: Gap widened, as NS fell relative to I

7. API-120 - Professor Jeffrey Frankel, Harvard University Keynesian Consumption Function: } or, expressed as a saving function: where s ≡ 1 – c.

8. API-120 - Professor Jeffrey Frankel, Harvard University Closed economy: NS – I = 0 Fiscal Expansion 1 < Closed-economy multiplier 1/s < ∞

9. Imports: for simplicity API-120 - Professor Jeffrey Frankel, Harvard University Open economy: NS – I = TB = X – M Exports: for simplicity

10. API-120 - Professor Jeffrey Frankel, Harvard University Fiscal Expansion slope = s Open economy

11. API-120 - Professor Jeffrey Frankel, Harvard University End of Lecture 4: Introduction to the Keynesian Model

12. Bussière, Callegari, Ghironi, Sestieri & Yamano, 2013, "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009." Appendix -- Puzzle: Why did global trade c ollapse in the 2008-09 global recession? (more than usual) 2009

13. API-120 - Professor Jeffrey Frankel, Harvard University Bussière, Callegari, Ghironi, Sestieri & Yamano, 2013, "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009." One answer: There is a marginal propensity to import out of investment, greater than the marginal propensity to import by consumers. And investment fell much more than consumption in 2008-09.