Exogenous and endogenous variables: Difference between revisions

Revision as of 17:13, 10 August 2020

Revision as of 18:14, 23 February 2021

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==Examples==

In the simple [[supply and demand]] model, a change in consumer tastes is unexplained by the model and imposes an exogenous change in demand that leads to a change in the endogenous [[economic equilibrium|equilibrium]] price and the endogenous equilibrium quantity transacted. Here the exogenous variable is a [[parameter]] conveying consumer tastes. Similarly, a change in the consumer's income is exogenously given, outside the model, and appears in the model as an exogenous change in demand.<ref name=Mankiw/>{{rp|p. 10}}

In the [[IS–LM model|LM model]] of interest rate determination,<ref name=Mankiw/>{{rp|pp. 261–7}} the supply of and demand for [[money]] determine the [[interest rate]] contingent on the level of the money supply, so the [[money supply]] is an exogenous variable and the interest rate is an endogenous variable.