1、OVERIVEW OF THE TEXTBOOKCore:Output(or Income)LevelPart Five Macroeconomics:The Study of Economic Growth and Business Cycles Part Six Economic Growth and the Open Economy Part Seven Unemployment,Inflation,and Economic PolicyPart Five Macroeconomics:The Study of Economic Growth and Business CyclesEnv
2、ironment:Excess CapacityShort runThe production responds to the change in aggregate demandPrice not consideredClosed EconomyNote: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
3、 Study of Economic Growth and Business Cycles20 Overview of Macroeconomics21 Measuring Economic Activity22 Consumption and Investment23 Business Fluctuations and the Theory of Aggregate Demand24 The Multiplier Model25 Money,Banking,and Financial Markets26 Central Banking and Monetary Policy 1.The fo
4、llowing 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.已知一国
5、某年经济数据如下：私人对住宅的支出为1000亿，私人购买的汽车等耐用消费品为100亿，私人在食品等日用消费品上的开支为400亿，企业对厂房、设备的购买为1200亿，政府支出为300亿，政府转移支付为100亿，总税收为200亿，当年出口为600亿，进口为800亿，折旧、存留利润各100亿。请只根据上述数据（缺损数据理解为零）计算如下指标：（1）国民生产总值;（2）私人总投资;（3）私人消费支出;（4）私人储蓄;（5）政府预算赢余;（6）国内对各种产品的总支出;（7）对国内产品的总支出;（8）可支配收入。3.Suppose that the basket of goods in the CPI c
6、onsisted of 3 units of pork and 2 units of corn.Use the table to answer：（1）What is the consumer price index for 2004 if the base year is 2003?（2）What is the inflation rate for 2004?yearprice of porkprice of corn2003$20$202004$20$304.Show that:I-S TA G TR+M X.And explain its implication.CHAPTER 22 CO
7、NSUMPTION AND INVESTMENT1.Consumption,Income,and Saving Recall:DI=SP+C SP-Personal saving C-Consumption2.Determinants of Consumption(464-467)Current DI Permanent income Wealth Price level Interest rate3.Useful Concepts (MPC)-The increment to the consumption induced by an extra dollar of DI,and (MPS)
8、-The increment to the saving induced by an extra dollar of DI MPS+MPC=1:Consumption independent from disposable income.DI10002000300040005000Consumption11002000280037004400MPC 0.90.80.70.44.The Influence of Disposable Income on Consumption People consume goods or services even if they do not have in
9、come Consumption increases with the increase in DI.The increase in consumption is less than the increase in DI5.The Consumption Function A function relating consumption to DI.C=C+c Y6.Investment6.1 DeterminantsRevenues Costs,including interest rateExpectations 6.2 Investment Demand Curve A curve rel
10、ating investment to interest rateCHAPTER 23 BUSINESS FLUCTUATIONS AND AGGREGATE DEMAND1.The Business CyclePeak-Recession-Depression-Trough-Recovery-Expansion-Peak(Boom).2.Sources of CyclesExogenous(内生）vs.Endogenous（外生）Two sources:Demand side and Supply side3.Aggregate Demand3.1 Why Aggregate Demand:
11、Excess Capacity3.2 What is Aggregate Demand AD is desired or planned aggregate expenditures at each level of price3.3 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 Ex
12、penditureAD =Desired Aggregate Expenditure Item ofAggregate Expenditure Intended?Actual?Components ConsumptionYesYesInvestmentnot sureYesIntended+unintended Fixed InvestmentYesYes Inventory Investment not sureYesIntended+unintended Government PurchaseYesYesNet ExportYesYes ExportYesYes ImportYesYesA
13、ggregate Expenditure(AE)Actual-National Accounting Intended-Aggregate DemandActual AE=Intended AE+Unintended AEAD=Intended AE=Actual AE Unintended AE =(C+Iactual+G+X)Iunintended =(C+Ifixed+Iinventory-actual+G+X)Iinventory-unintendedRecallInvestment-New addition to the current capital stock or privat
14、e purchases of structures and equipment and accumulation of inventoriesI=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 yearNet Investment=capital stock i
15、n the end of this year-capital stock in the end of last year Summary of ADAD is desired or planned aggregate expenditures at each level of price.AD=C+I+G+XFour components are both and.C+I+G+X in national accounting is actual but is not guaranteed to be planned or desired.4.Aggregate Demand Curve4.1
16、Why is AD Curve Downward Slopping?Lower price increases the real money supply relative to money demand and hence cause the interest rate to fall.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
17、 Demand(487L)CHAPTER 24 THE MULTIPLIER MODELWhat does it concern?What determines total output(GDP,for example)and how.EnvironmentReal economy(Without money)Closed economy(No foreign trade)No PriceExcess Capacity Short runCHAPTER 24 THE MULTIPLIER MODEL1.GDP Determination GDP=C+I+G+X (We denote GDP b
18、y Y.)Equilibrium Condition(Equilibrium Equation)Y=C+I+G+XOr Y=planned AE Why?CHAPTER 24 THE MULTIPLIER MODEL2.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:hou
19、sehold and businessCHAPTER 24 THE MULTIPLIER MODEL2.1 Equilibrium Output Determination:Output is determined by planned aggregate expenditures,which are equal to the sum of C and IEquilibrium Equation 1:Y=C+IEquilibrium Equation 2:I=STwo equations are equivalent:By Y=C+I(Equilibrium Equation)and Y=C+
20、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 MODEL2.2 Adjustment Mechanism:Inventory PrincipleTwo Facts:Y is determined by C+I.When Y=C+I or I=S holds,the output is
21、at equilibrium.WHY?We show it by three imaginary cases:CHAPTER 24 THE MULTIPLIER MODEL1st 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 stage2nd case:Y C+I(or equivalently,S I)-Actual inve
22、ntory planned inventory-Need to increase inventory to the desired level-Production expansion-increasing Output next stage3rd case:Y=C+I(or equivalently,S=I).UnintendedInventory increase Actual InventoryGDPActualIntendedInventoryFixed investmentXGCAggregate expenditure YCHAPTER 24 THE MULTIPLIER MODE
23、L2.3 Algebra of GDP Determination The Approach of I=S I=S I=I0 S=-a+(1-b)Y-Y=1/(1-b)*(a+I0)The Approach of Y=C+I Y=C+I C=a+b Y I =I0-Y=1/(1-b)*(a+I0)CHAPTER 24 THE MULTIPLIER MODEL2.4 Graphical Picture of GDP DeterminationY=C+ICHAPTER 24 THE MULTIPLIER MODEL2.4 Graphical Picture of GDP Determination
24、I=SI,SYI=I0S=-a+(1-b)Y-aIS3.Multiplier Principle-The Change of GDP:the Effect of an Increase in Investment(24 A:496-499)-Round Increase in AD Accumulative Increase in Y1 I I2 bI I+bI 3 b bI I+bI+b2I.n bn-1I I+bI+b2I+bn-1I-Y=(1+b2+b3+bn-1)I =1/(1-b)I CHAPTER 24 THE MULTIPLIER MODELChange in output=Th
25、e Change in Investment 1/(1-MPC).WHY?3.1 Method 1:Dynamic ProcessY=I+b I+b2 I+b3 I+bn-1 I =I(1+b+b2+bn-1)=I 1/(1-b)CHAPTER 24 THE MULTIPLIER MODEL3.2 Method 2：Algebra（Comparative 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 Picture（Dynamic Analysis)IIYYYY1Y245
26、oMultiplier in picture39DERIVATION OF THE MULTIPLIERSummary: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 MODEL4.The Paradox of ThriftWhen Capacity is Idle:SI More Saving this year-less expenditures this year-less outp
27、ut next year-less saving next yearWhen AD is sufficient and Full Employment Occurs More saving-More Investment-Greater Capacity-Long-term growthCHAPTER 24 THE MULTIPLIER MODEL5.The Effect of Fiscal Policy(24 B)Output Determination and its Change in Three Sector EconomyThree Sectors:Household,Busines
28、s,and GovernmentCHAPTER 24 THE MULTIPLIER MODEL5.1 Fiscal Policy and National Output GDP Determination:Y=C+I+GFiscal 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 i
29、s enlarged-AD increases-total output increasesNotice: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-TRCHAPTER 24 THE MULTIPLIER MODEL5.2 Algebra of National Output Determination with Fiscal PolicyY=C+I+G C=a+b DI =a+
30、b(Y TX+TR)TX-tax;TR transfer =a+b(Y T)T=TX TRI =I0G=G0-Y=1/(1-b)*(a+I0+G0 b*TX+b*TR)=1/(1-b)*(a+I0+G0 b*T)CHAPTER 24 THE MULTIPLIER MODEL5.3 Comparison of Total Output with Fiscal Policy and without Fiscal PolicyWith Fiscal Policy:Y=1/(1-b)*(a+I0+G0 b*T)=1/(1-b)*(a+I0)+1/(1-b)*(G0 b*T)Without Fiscal
31、 Policy:Y=1/(1-b)*(a+I0)A Graphic Illustration:see Figure 24-6 and 24-7Question:does fiscal policy increase GDP or reduce it?CHAPTER 24 THE MULTIPLIER MODEL5.4 Fiscal Policy MultiplierChanges in Fiscal policy lead to changes in total output.QUESTION:how much can fiscal policy alter total output?5.4.
32、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 MODEL5.4.2 The Effect of Change in Tax:Tax
33、 MultiplierThe 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 ta
34、x 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 GDPSuppose tax rises by T,DI decreases by the
35、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 -bT2 b G -b2T3 b 2 G -b3T.n bn-1 G -bnT-Y=(1+b2+b3+bn-1)G =1/(1-b)G Y=(-b-b2-b3-bn)T =(-b)(1+b2+b3+bn-1)T=-b/(1-b)TCompari
36、son of Tax with Purchases Y=(1+b2+b3+bn-1)G =1/(1-b)G Y=(-b -b2-b3-bn)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
37、is the increase in GDP induced by an increase of$1 in tax.CHAPTER 24 THE MULTIPLIER MODELT=Tax-TransferTotal 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 CH
38、APTER 24 THE MULTIPLIER MODELTotal tax multiplierY=-b/(1-b)TX Y/TX =-b/(1-b)Transfer multiplierY=b/(1-b)TRY/TR =b/(1-b)(Net)Tax multiplierY=-b/(1-b)(TX-TR)Y/T=Y/(TX-TR)=-b/(1-b)CHAPTER 24 THE MULTIPLIER MODELQuestion 1:If tax and purchase increase simultaneously by the same amount,will GDP increase,
39、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 ADGDP increases by the amount greater than
40、 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 GD
41、P 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 MODELSummary of Fiscal PolicyGovernment purchase has the same effect on GDP as investment.Total Tax influences GDP negatively by less extent tha
42、n 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 MODELDifferent Multipliers:Autonomous Expenditure Multiplier Investment Multiplier Government Purchases multiplierTax MultiplierTransfer 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
