Long-Run Classical Macroeconomic Simulator

Long-run classical model

Four connected markets, one consistent equilibrium. Change an input or apply a preset shock.

Preset isolated shocks — each starts from the stored baseline

Exogenous variables and structural parameters (click to collapse / expand)

Baseline settings

Baseline (0) Scenario (1)

Only shifted curves are red; movements along a fixed curve are marked by a new point.

Labor market

Labor supply and marginal product of labor

Employment is supplied exogenously; the real wage adjusts.

Production function

Cobb–Douglas production

Capital, technology, and labor determine real output.

Loanable funds

Saving supply and investment demand

The real interest rate brings planned saving and investment into balance.

Aggregate supply and demand

Vertical long-run AS and quantity-theory AD

The price level adjusts so that MV = PY at full-employment output.

Show new equilibrium

Equilibrium values

Endogenous variable	Baseline (0)	Scenario (1)	Change (1 − 0)

The interest rate r is in percent (e.g., r = 4 means 4%). M is a money stock and V is turnover per period; their product MV is nominal spending. Output Y and saving/investment are in real units. Numerical results appear in the table rather than on crowded graph axes.

Model equations

Production:      Y = A K^alpha N^(1-alpha)
Labor demand:    W/P = MPN = (1-alpha) A (K/N)^alpha
Labor supply:    N = N^s
Consumption:     C = c0 + c1(Y-T) - c2 r
Investment:      I = i0 - i1 r
National saving: S = Y - C - G
Loanable funds:  S = I
Aggregate supply: Y = Y* = A K^alpha (N^s)^(1-alpha)
Aggregate demand: MV = PY

Closed-form equilibrium

N* = N^s
Y* = A K^alpha (N^s)^(1-alpha)
(W/P)* = (1-alpha) A (K/N^s)^alpha
r* = [i0 - Y* + c0 + c1(Y* - T) + G] / (i1 + c2)
C* = c0 + c1(Y* - T) - c2 r*
I* = i0 - i1 r* = S*
P* = MV / Y*

This is a long-run, flexible-price classical model. The economy operates at its full-employment output; neither M nor V changes employment, output, or the real rate holding real inputs and parameters fixed. A change in G changes saving and the real rate, not long-run output.