《宏观经济学英文课件：lecture4 Classical Theory Macro Demand and Supply》由会员分享，可在线阅读，更多相关《宏观经济学英文课件：lecture4 Classical Theory Macro Demand and Supply（38页珍藏版）》请在金锄头文库上搜索。
1、Lecture 4: Classical Theory: Macro Demand and SupplyNational Income: Where it Comes From and Where it Goes1MotivationWe need to understand the causes and consequences of aggregate economy theoreticallyTo provide a theoretical framework to explain the flow chartTo predict the effects of macroeconomic
2、 policies under theoretical assumptionsIn sum, we need models to explain the reality!slide 2Outline of modelA closed economy, market-clearing modelSupply sidefactor markets (supply, demand, price)determination of output/incomeDemand sidedeterminants of C, I, and GEquilibriumgoods marketloanable fund
3、s marketslide 3Factors of productionK = capital, tools, machines, and structures used in productionL = labor, the physical and mental efforts of workersslide 4The production functiondenoted Y = F (K, L)shows how much output (Y ) the economy can produce fromK units of capital and L units of labor. re
4、flects the economys level of technology. exhibits constant returns to scale.slide 5Returns to scale: a reviewInitially Y1 = F (K1 , L1 ) Scale all inputs by the same factor z: K2 = zK1 and L2 = zL1 (If z = 1.25, then all inputs are increased by 25%)What happens to output, Y2 = F (K2 , L2 ) ? If cons
5、tant returns to scale, Y2 = zY1 If increasing returns to scale, Y2 zY1 If decreasing returns to scale, Y2 zY1 slide 6Assumptions of the model1.Technology is fixed.2.The economys supplies of capital and labor are fixed atslide 7Determining GDPOutput is determined by the fixed factor supplies and the
6、fixed state of technology:slide 8The distribution of national incomedetermined by factor prices, the prices per unit that firms pay for the factors of production. The wage is the price of L ,the rental rate is the price of K.slide 9Notation W = nominal wage R = nominal rental rate P = price of outpu
7、t W /P = real wage (measured in units of output) R /P = real rental rateslide 10How factor prices are determinedFactor prices are determined by supply and demand in factor markets. Recall: Supply of each factor is fixed.What about demand? slide 11Demand for laborAssume markets are competitive: each
8、firm takes W, R, and P as givenBasic idea:A firm hires each unit of labor if the cost does not exceed the benefit. cost = real wagebenefit = marginal product of laborslide 12Marginal product of labor (MPL)def:The extra output the firm can produce using an additional unit of labor (holding other inpu
9、ts fixed):MPL = F (K, L +1) F (K, L)slide 13MPL and the demand for laborslide 14Each firm hires labor up to the point where MPL = W/PUnits of outputUnits of labor, LMPL, Labor demandReal wageQuantity of labor demandedDetermining the rental rateWe have just seen that MPL = W/PThe same logic shows tha
10、t MPK = R/P :diminishing returns to capital: MPK as K The MPK curve is the firms demand curve for renting capital. Firms maximize profits by choosing K such that MPK = R/P . slide 15The Neoclassical Theory of Distributionstates that each factor input is paid its marginal productaccepted by most econ
11、omistsslide 16Land as a production factor.In china. Land is owned by the State.In the market , people can transact the leasehold of land.Land sale revenues is a major source of local govnt. Income.= in recent years.slide 17How income is distributed:total labor income =slide 18If production function
12、has constant returns to scale, then total capital income =laborincomecapitalincomenationalincomeOutline of modelA closed economy, market-clearing modelSupply sideqfactor markets (supply, demand, price)qdetermination of output/incomeDemand sideqdeterminants of C, I, and GEquilibriumqgoods marketqloan
13、able funds marketslide 19DONE DONE Next Demand for goods & servicesComponents of aggregate demand:C = consumer demand for g & sI = demand for investment goodsG = government demand for g & s(closed economy: no NX )slide 20Consumption, Cdef: disposable income is total income minus total taxes: Y TCons
14、umption function: C = C (Y T )Shows that (Y T ) C def: The marginal propensity to consume is the increase in C caused by a one-unit increase in disposable income.slide 21The consumption functionslide 22CY TC (Y T )1MPCThe slope of the consumption function is the MPC.Investment, IThe investment funct
15、ion is I = I (r ), where r denotes the real interest rate, the nominal interest rate corrected for inflation. The real interest rate is the cost of borrowing the opportunity cost of using ones own funds to finance investment spending.So, r I slide 23The investment functionslide 24rII (r )Spending on
16、 investment goods is a downward-sloping function of the real interest rateGovernment spending, GG includes government spending on goods and services. G excludes transfer payments Assume government spending and total taxes are exogenous:slide 25The market for goods & servicesThe real interest rate ad
17、justs to equate demand with supply.slide 26The loanable funds marketA simple supply-demand model of the financial system.One asset: “loanable funds” demand for funds: investment supply of funds: saving “price” of funds: real interest rateslide 27Demand for funds: InvestmentThe demand for loanable fu
18、nds:comes from investment:Firms borrow to finance spending on plant & equipment, new office buildings, etc. Consumers borrow to buy new houses. depends negatively on r , the “price” of loanable funds (the cost of borrowing). slide 28Loanable funds demand curveslide 29rII (r )The investment curve is
19、also the demand curve for loanable funds.Supply of funds: SavingThe supply of loanable funds comes from saving:Households use their saving to make bank deposits, purchase bonds and other assets. These funds become available to firms to borrow to finance investment spending. The government may also c
20、ontribute to saving if it does not spend all of the tax revenue it receives. slide 30Types of savingprivate saving= (Y T ) Cpublic saving = T Gnational saving, S = private saving + public saving= (Y T ) C + T G = Y C Gslide 31Loanable funds supply curveslide 32rS, INational saving does not depend on
21、 r, so the supply curve is vertical.Loanable funds market equilibriumslide 33rS, II (r )Equilibrium real interest rateEquilibrium level of investmentThe special role of rr adjusts to equilibrate the goods market and the loanable funds market simultaneously: If L.F. market in equilibrium, thenY C G =
22、 I Add (C +G ) to both sides to getY = C + I + G (goods market eqm)Thus, slide 34Eqm in L.F. marketEqm in goods marketslide 35Mastering the loanable funds model1. Things that shift the saving curvea.public saving i.fiscal policy: changes in G or Tb.private savingi.preferencesii.tax laws that affect
23、saving401(k)IRAreplace income tax with consumption taxMastering the loanable funds model2. Things that shift the investment curvea.certain technological innovations to take advantage of the innovation, firms must buy new investment goodsb.tax laws that affect investmentinvestment tax creditslide 36Saving and the interest rateWhy might saving depend on r ?How would the results of an increase in investment demand be different?Would r rise as much?Would the equilibrium value of I change?slide 37An increase in investment demand when saving depends on the interest rateslide 38
