Teaching the COVID-19 lockdown using the Keynesian Cross

Florian Sniekers

The Journal of Economic Education, 2023, vol. 54, issue 1, 38-59

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 IS curve shows that a lockdown results in deflation. These insights can be taught in an introductory or intermediate macroeconomics course.

Date: 2023
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DOI: 10.1080/00220485.2022.2144570

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