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1、macroeconomics fifth edition macro 2002 Worth Publishers, all rights reservedCHAPTER THREENational Income:Where it Comes From and Where it GoesCHAPTER 3CHAPTER 3 National Income National Incomeslide 1In this chapter you will learn:what determines the economys total output/incomehow the prices of the
2、 factors of production are determinedhow total income is distributedwhat determines the demand for goods and serviceshow equilibrium in the goods market is achievedCHAPTER 3CHAPTER 3 National Income National Incomeslide 2Outline of modelA closed economy, market-clearing modelSupply sidefactor market
3、s (supply, demand, price)determination of output/incomeDemand sidedeterminants of C, I, and GEquilibriumgoods marketloanable funds marketCHAPTER 3CHAPTER 3 National Income National Incomeslide 3Factors of productionK = capital, tools, machines, and structures used in productionL = labor, the physica
4、l and mental efforts of workersCHAPTER 3CHAPTER 3 National Income National Incomeslide 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. reflects the economys level of technology. exhibits constant returns to s
5、cale.CHAPTER 3CHAPTER 3 National Income National Incomeslide 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 constant returns to scale
6、, Y2 = zY1 If increasing returns to scale, Y2 zY1 If decreasing returns to scale, Y2 G , budget surplus = (T G ) = public savingWhen T 0big tax cuts: T 0According to our model, both policies reduce national saving:CHAPTER 3CHAPTER 3 National Income National Incomeslide 491. The Reagan deficits, cont
7、.rS, II (r )r1I1r22. which causes the real interest rate to riseI23. which reduces the level of investment.1. The increase in the deficit reduces savingCHAPTER 3CHAPTER 3 National Income National Incomeslide 50Are the data consistent with these results?variable1970s1980sT G2.23.9S19.617.4r1.16.3I19.
8、919.4TG, S, and I are expressed as a percent of GDPAll figures are averages over the decade shown.CHAPTER 3CHAPTER 3 National Income National Incomeslide 51Now you tryDraw the diagram for the loanable funds model. Suppose the tax laws are altered to provide more incentives for private saving. What h
9、appens to the interest rate and investment? (Assume that T doesnt change)CHAPTER 3CHAPTER 3 National Income National Incomeslide 52Mastering the loanable funds model2. Things that shift the investment curvea.certain technological innovations to take advantage of the innovation, firms must buy new in
10、vestment goodsb.tax laws that affect investmentinvestment tax creditCHAPTER 3CHAPTER 3 National Income National Incomeslide 53An increase in investment demandAn increase in desired investmentrS, II1I2r1r2raises the interest rate.But the equilibrium level of investment cannot increase because thesupp
11、ly of loanable funds is fixed.CHAPTER 3CHAPTER 3 National Income National Incomeslide 56Chapter summary1.Total output is determined byhow much capital and labor the economy hasthe level of technology2.Competitive firms hire each factor until its marginal product equals its price. 3.If the production
12、 function has constant returns to scale, then labor income plus capital income equals total income (output).CHAPTER 3CHAPTER 3 National Income National Incomeslide 57Chapter summary4.The economys output is used forconsumption (which depends on disposable income)investment (depends on the real intere
13、st rate)government spending (exogenous)5.The real interest rate adjusts to equate the demand for and supply ofgoods and servicesloanable fundsCHAPTER 3CHAPTER 3 National Income National Incomeslide 58Chapter summary6.A decrease in national saving causes the interest rate to rise and investment to fall. An increase in investment demand causes the interest rate to rise, but does not affect the equilibrium level of investment if the supply of loanable funds is fixed. CHAPTER 3CHAPTER 3 National Income National Incomeslide 59
