Keynesian cross [deriving its name from the British economist
John Maynard Keynes (1883-1946)]
is a device that identifies equilibrium income. Here the
term equilibrium income refers to the level of income at which planned
spending exactly matches the level of output produced. This kind
of equilibrium is, therefore, often called demand-side equilibrium.
Further reading on pp. 33ff.
The Keynesian cross contains two lines:
1. The 45° line measures actual demand which is always
the same as income. At points above this line desired demand exceeds
output; at points below this line the opposite is true.
2. The aggregate demand line indicates the sum of all spending
The two lines cross in the grey circle, meaning that here actual
spending equals planned spending, and that planned spending is perfectly
compatible with income. Y0 is demand-side equilibrium
Click here for interactive applet featuring the Keynesian cross