單擊此處編輯母版標題樣式,單擊此處編輯母版文本樣式,第二級,第三級,第四級,第五級,*,OVERIVEW OF THE TEXTBOOK,Core: Output ( or Income) Level,Part Five,Macroeconomics: The Study of Economic Growth and Business Cycles,Part Six,Economic Growth and the Open Economy,Part Seven,Unemployment, Inflation, and Economic Policy,Part Five,Macroeconomics: The Study of,Economic,Growth and Business Cycles,Environment:,Excess Capacity,Short run,The production responds to the change in aggregate demand,Price not considered,Closed Economy,Note: These do not hold for Ch. 20 and 21.,Problems:,Overview pf Macroeconomics (CH 20),Measure Total Output (CH 21),Determination of Total Output (CH 22-26),Part Five,Macroeconomics: The Study of Economic Growth and Business Cycles,20 Overview of Macroeconomics,21 Measuring Economic Activity,22 Consumption and Investment,23 Business Fluctuations and the Theory of Aggregate Demand,24 The Multiplier Model,25 Money, Banking, and Financial Markets,26 Central Banking and Monetary Policy,1.The following is information from the national income accounts for a hypothetical country:,-,GDP 6,000,Gross investment 800,Net investment 200,Consumption 4,000,Government purchases 1,000,Government budget Surplus 40,-,What is:,a. NDP? b. Net exports? c. Net tax?,d. Disposable personal income? e. Personal saving?,2. 一國某年經(jīng)濟數(shù)據(jù)如下：私人對住宅的支出為1000億，私人購置的汽車等耐用消費品為100億，私人在食品等日用消費品上的開支為400億，企業(yè)對廠房、設(shè)備的購置為1200億，政府支出為300億，政府轉(zhuǎn)移支付為100億，總稅收為200億，當年出口為600億，進口為800億，折舊、存留利潤各100億。請只根據(jù)上述數(shù)據(jù)缺損數(shù)據(jù)理解為零計算如下指標：,1國民生產(chǎn)總值;2私人總投資;3私人消費支出;4私人儲蓄;5政府預(yù)算贏余;6國內(nèi)對各種產(chǎn)品的總支出;7對國內(nèi)產(chǎn)品的總支出;8可支配收入。,3. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of corn. Use the table to answer：,1What is the consumer price index for 2004 if the base year is 2003?,2What is the inflation rate for 2004?,year,price of pork,price of corn,2003,$20,$20,2004,$20,$30,4. Show that:,I - S,TA G,TR + M X.,And explain its implication.,CHAPTER 22 CONSUMPTION AND INVESTMENT,1. Consumption, Income, and Saving,Recall: DI = S,P,+ C,S,P,-Personal saving,C -Consumption,2. Determinants of Consumption (464-467),Current DI,Permanent income,Wealth,Price level,Interest rate,3. Useful Concepts,Marginal Propensity to Consume,(MPC)-The increment to the consumption induced by an extra dollar of DI, and,Marginal Propensity to Save,(MPS)- The increment to the saving induced by an extra dollar of DI,MPS+MPC=1,Autonomous Consumption,: Consumption independent from disposable income.,DI,1000,2000,3000,4000,5000,Consumption,1100,2000,2800,3700,4400,MPC,0.9,0.8,0.7,0.4,4. The Influence of Disposable Income on Consumption,People consume goods or services even if they do not have income,Consumption increases with the increase in DI.,The increase in consumption is less than the increase in DI,5. The Consumption Function,A function relating consumption to DI.,C = C + c Y,6. Investment,6.1 Determinants,Revenues,Costs, including interest rate,Expectations,6.2 Investment Demand Curve,A curve relating investment to interest rate,CHAPTER 23 BUSINESS FLUCTUATIONS AND AGGREGATE DEMAND,1. The Business Cycle,Peak-Recession-Depression-Trough-Recovery-Expansion-Peak (Boom).,2. Sources of Cycles,Exogenous (內(nèi)生 vs. Endogenous 外生,Two sources: Demand side and Supply side,3. Aggregate Demand,3.1 Why Aggregate Demand:,Excess Capacity,3.2 What is Aggregate Demand,AD is desired or planned aggregate expenditures at each level of price,3.3 Components of AD,C-Consumption,I-Investment,G-Government Purchase,X-Net Export (Export Import),3.4 Understanding AD: Two different kinds of Aggregate Expenditure,GDP = Actual Aggregate Expenditure,AD = Desired Aggregate Expenditure,Item of,Aggregate Expenditure,Intended?,Actual?,Components,Consumption,Yes,Yes,Investment,not sure,Yes,Intended + unintended,Fixed Investment,Yes,Yes,Inventory Investment,not sure,Yes,Intended + unintended,Government Purchase,Yes,Yes,Net Export,Yes,Yes,Export,Yes,Yes,Import,Yes,Yes,Aggregate Expenditure (AE),Actual-National Accounting,Intended-Aggregate Demand,Actual AE = Intended AE + Unintended AE,AD = Intended AE=Actual AE Unintended AE,= (C + I,actual,+ G + X) I,unintended,= (C + I,fixed,+ I,inventory-actual,+ G + X), I,inventory-unintended,Recall,Investment-New addition to the current capital stock or private purchases of structures and equipment and accumulation of inventories,I = fixed investment + inventory investment,Fixed Investment = spending on machine, equipment, and housing,Inventory Investment = Inventory Stock in the end of this year - Inventory Stock in the end of last year,Net Investment = capital stock in the end of this year - capital stock in the end of last year,Summary of AD,AD is desired or planned aggregate expenditures at each level of price.,AD = C + I + G +X,Four components are both,actual,and,desired,.,C+I+G+X in national accounting is actual but is not guaranteed to be planned or desired.,4. Aggregate Demand Curve,4.1 Why is AD Curve Downward Slopping?,Money supply effect (Interest rate effect),Lower price increases the real money supply relative to money demand and hence cause the interest rate to fall.,Wealth effect,Lower price level makes people feel wealthier and hence spend more.,4.2 Shifts in Aggregate Demand (table 23-1),4.3 Relative Importance of Factors Influencing Demand (487L),CHAPTER 24 THE MULTIPLIER MODEL,What does it concern?,What determines total output (GDP, for example) and how.,Environment,Real economy (Without money),Closed economy (No foreign trade),No Price,Excess Capacity,Short run,CHAPTER 24 THE MULTIPLIER MODEL,1. GDP Determination,GDP = C + I + G + X,(We denote GDP by Y.),Equilibrium Condition (Equilibrium Equation),Y = C + I + G + X,Or Y = planned AE,Why?,CHAPTER 24 THE MULTIPLIER MODEL,2. A Simplified Model of GDP Determination (24A: 491-495),Question:,How total output is determined in an economy without government.,Environment:,Two sector model of GDP determination,Two sectors: household and business,CHAPTER 24 THE MULTIPLIER MODEL,2.1 Equilibrium Output Determination:,Output is determined by planned aggregate expenditures,which are equal to the sum of C and I,Equilibrium Equation 1:Y=C+I,Equilibrium Equation 2: I=S,Two equations are equivalent:,By Y=C+ I (Equilibrium Equation) and,Y=C+S ( Identities),it is required for the output to be at equilibrium that,C+I=C+S.,So we have as a condition:,I=S.,So we conclude that,Y=C+I is equivalent to I=S.,CHAPTER 24 THE MULTIPLIER MODEL,2.2 Adjustment Mechanism:,Inventory Principle,Two Facts:,Y is determined by C + I.,When Y=C+I or I=S holds, the output is at equilibrium.,WHY? We show it by three imaginary cases:,CHAPTER 24 THE MULTIPLIER MODEL,1st Case,: Y > C+I (or equivalently, S I),- Actual inventory > planned inventory-Need to reduce inventory to the desired level-Production Contraction - Declining Output next stage,2nd case,: Y < C+I (or equivalently, S I),- Actual inventory < planned inventory-Need to increase inventory to the desired level-Production expansion - increasing Output next stage,3rd case,:Y=C+I (or equivalently, S = I).,Unintended,Inventory increase,Actual,Inventory,GDP,Actual,Intended,Inventory,Fixed investment,X,G,C,Aggregate expenditure < Y,Unintended,Inventory decrease,Intended,Actual Inventory,Inventory,GDP,Actual,Fixed investment,X,G,C,Aggregate expenditure > Y,CHAPTER 24 THE MULTIPLIER MODEL,2.3 Algebra of GDP Determination,The Approach of I = S,I = S,I = I,0,S = - a + (1-b) Y,-,Y = 1/(1-b)*(a + I,0,),The Approach of Y = C + I,Y = C + I,C = a + b Y,I = I,0,-,Y = 1/(1-b)*(a + I,0,),CHAPTER 24 THE MULTIPLIER MODEL,2.4 Graphical Picture of GDP Determination,Y=C+I,CHAPTER 24 THE MULTIPLIER MODEL,2.4 Graphical Picture of GDP Determination,I=S,I, S,Y,I=I,0,S =-a + (1-b)Y,-a,I<S,I>S,3. Multiplier Principle-The Change of GDP: the Effect of an Increase in Investment (24 A:496-499),-,Round Increase in AD Accumulative Increase in Y,1 I I,2 bI I+ bI,3 b bI I+ bI+ b,2,I,.,n b,n-1,I I+ bI+ b,2,I +b,n-1,I,-, Y = ( 1 + b,2,+ b,3,+ + b,n-1,) I,= 1/(1-b) I,CHAPTER 24 THE MULTIPLIER MODEL,Change in output = The Change in Investment 1 / (1-MPC),.,WHY?,3.1 Method 1: Dynamic Process,Y= I+b I+b,2,I+b,3,I+b,n-1,I,= I(1+b+b,2,+b,n-1,),= I 1/(1-b),CHAPTER 24 THE MULTIPLIER MODEL,3.2 Method 2：AlgebraComparative Statics),Y1=a+ I0· 1/1-MPC,Y2= a+ I0 + I · 1/1-MPC,Y= Y2 - Y1,= I 1/(1-b),3.3 Method 3 Graphic PictureDynamic Analysis),I,I,Y,Y,Y,Y,1,Y,2,45,o,Multiplier in picture,DERIVATION OF THE MULTIPLIER,38,Summary: the Investment Multiplier is the increase in GDP induced by an increase of $ 1 in investment.,Y/I = 1/(1-b),CHAPTER 24 THE MULTIPLIER MODEL,4. The Paradox of Thrift,When Capacity is Idle: S>I,More Saving this year-less expenditures this year - less output next year - less saving next year,When AD is sufficient and Full Employment Occurs,More saving - More Investment - Greater Capacity -Long-term growth,CHAPTER 24 THE MULTIPLIER MODEL,5. The Effect of Fiscal Policy (24 B),Output Determination and its Change in Three Sector Economy,Three Sectors: Household, Business, and Government,CHAPTER 24 THE MULTIPLIER MODEL,5.1 Fiscal Policy and National Output,GDP Determination: Y = C + I + G,Fiscal Policy: G, TX, and TR,G (government purchase) is part of AD, contributing to output determination.,Taxation -Disposable Income is reduced -AD declines -total output falls.,Transfer Payments -DI is enlarged - AD increases - total output increases,Notice: textbook put taxes and transfer payments together. In other word, the taxes should be thought of net tax, i.e, tax minus transfer.,T = TX - TR,CHAPTER 24 THE MULTIPLIER MODEL,5.2 Algebra of National Output Determination with Fiscal Policy,Y = C + I + G,C = a + b DI,= a + b (Y TX + TR) TX- tax; TR transfer,= a + b (Y T ) T = TX TR,I = I,0,G = G,0,-,Y = 1/(1-b)*(a + I,0,+ G,0, b*TX + b*TR),= 1/(1-b)*(a + I,0,+ G,0, b*T),CHAPTER 24 THE MULTIPLIER MODEL,5.3 Comparison of Total Output with Fiscal Policy and without Fiscal Policy,With Fiscal Policy:,Y = 1/(1-b)*(a + I,0,+ G,0, b*T),=,1/(1-b)*(a + I,0,),+,1/(1-b)*(G,0, b*T),Without Fiscal Policy:,Y =,1/(1-b)*(a + I,0,),A Graphic Illustration: see Figure 24-6 and 24-7,Question: does fiscal policy increase GDP or reduce it?,CHAPTER 24 THE MULTIPLIER MODEL,5.4 Fiscal Policy Multiplier,Changes in Fiscal policy lead to changes in total output.,QUESTION: how much can fiscal policy alter total output?,5.4.1 The Effect of a Change in Government Purchase: Government Purchase Multiplier ( Government Expenditure Multiplier),Recall: Investment multiplier:,Y = 1/(1-b) I or Y /I = 1/(1-b),It is the same as Investment Multiplier:,Y = 1/(1-b) G or Y /G = 1/(1-b),CHAPTER 24 THE MULTIPLIER MODEL,5.4.2 The Effect of Change in Tax: Tax Multiplier,The effect,An Increase in tax reduce AD and hence GDP.,The effectiveness,QUESTION: is it as powerful as expenditure changes?,Absolutely NOT! For tax change influences GDP via AD. But it changes AD by less amount than the change in expenditure, since AD changes come from DI changes induced by tax changes and MPC is generally less than one.,The key is: G is simply part of AD and Tax not. Taxes influence C,indirectly, which is part of AD.,Important assumption: tax is lump-sum tax, independent of output level.,The mechanism by which tax changes influence GDP,Suppose tax rises by T, DI decreases by the same amount of T , which reduces AD by b T in the first round., T - DI = - T - AD = - b T - GDP declines - DI falls ,CHAPTER 24 THE MULTIPLIER MODEL,-,Round Effect of G on AD Effect of Tax on AD,1 G - bT,2 b G - b,2,T,3 b,2, G - b,3,T,.,n b,n-1, G,- b,n,T,-, Y = ( 1 + b,2,+ b,3,+ + b,n-1,) G = 1/(1-b) G, Y = ( -b,- b,2,- b,3,- - b,n,) T,= (- b)( 1+b,2,+ b,3,+ + b,n-1,) T =- b/(1-b) T,Comparison of Tax with Purchases, Y = ( 1 + b,2,+ b,3,+ + b,n-1,) G =, 1/(1-b) G, Y = (-,b,-b,2-,b,3,- -,b,n,) T =-,b,/(1-b) T,=, 1/(1-b) (-b,T),Government expenditure multiplier,:, Y/ G = ,1,/(1-b),the government expenditure Multiplier is the increase in GDP induced by an increase of $ 1 in government purchase.,Tax multiplier:, Y /T = -,b,/(1-b),the Tax Multiplier is the increase in GDP induced by an increase of $ 1 in tax.,CHAPTER 24 THE MULTIPLIER MODEL,T = Tax -Transfer,Total tax multiplier, TX - DI = - TX - AD = - b TX - GDP declines - DI falls .,Transfer multiplier, TR - DI = TR - AD = b TR- GDP increases - DI rises .,(Net) Tax multiplier,( TX-TR) - DI = (TX TR) - AD = b (TX TR) - GDP changes - DI changes ,CHAPTER 24 THE MULTIPLIER MODEL,Total tax multiplier,Y = - b/(1-b) TX,Y / TX = - b/(1-b) ,Transfer multiplier,Y = b/(1-b) TR,Y / TR = b/(1-b),(Net) Tax multiplier,Y = -b/(1-b) (TX - TR),Y /T = Y /(TX - TR )=- b/(1-b),CHAPTER 24 THE MULTIPLIER MODEL,Question 1:,If tax and purchase increase simultaneously by the same amount, will GDP increase, decrease, or remain unchanged? (balanced-budget multiplier),Question 2:,If GDP is levied a proportional income tax, i.e., tax is dependent on GDP, is the multiplier we developed above any different?,Summary of Multiplier Principle:,GDP increases with the increase in AD,GDP increases by the amount greater than the increase in autonomous expenditure such as investment and government purchase. (The increase in GDP is the multiple increase in investment or government purchase.),The multiplier depends on MPC (and tax rate),The multiplier may influence GDP in two directions: the increase in investment increases GDP by a multiplier and the decrease in investment also reduces GDP by the same multiplier.,The multiplier holds for excess capacity.,CHAPTER 24 THE MULTIPLIER MODEL,Summary of Fiscal Policy,Government purchase has the same effect on GDP as investment.,Total Tax influences GDP negatively by less extent than government purchases.,Transfer payments influence GDP positively by the same extent as total tax but lower extent than government purchases.,Balanced budget has expansionary effect on GDP.,CHAPTER 24 THE MULTIPLIER MODEL,Different Multipliers:,Autonomous Expenditure Multiplier,Investment Multiplier,Government Purchases multiplier,Tax Multiplier,Transfer Payment Multiplier,Definition of Multiplier,Multiplier is the number by which the change in expenditures or in fiscal policies must be multiplied to get the resulting change in GDP,