宏观经济学英文课件：ch3 National IncomeWhere it Comes From and Where it Goes

1、S E V E N T H E D I T I O Nwhat determines the economys total output/incomehow the prices of the factors of production are determinedhow total income is distributedwhat determines the demand for goods and serviceshow equilibrium in the goods market is achieved2CHAPTER 3 National IncomeOutline of mod

2、elA closed economy, market-clearing modelSupply sidefactor markets (supply, demand, price)determination of output/incomeDemand sidedeterminants of C, I, and GEquilibriumgoods marketloanable funds market3CHAPTER 3 National IncomeFactors of productionK = capital: tools, machines, and structures used i

3、n productionL = labor: the physical and mental efforts of workers4CHAPTER 3 National IncomeThe production function: 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 scale5CH

4、APTER 3 National IncomeReturns to scale: A reviewInitially Y1 = F (K1 , L1 ) Scale all inputs by the same factor z: K2 = zK1 and L2 = zL1 (e.g., if z = 1.2, then all inputs are increased by 20%)What happens to output, Y2 = F (K2, L2 )? If constant returns to scale, Y2 = zY1 If increasing returns to

5、scale, Y2 zY1 If decreasing returns to scale, Y2 07CHAPTER 3 National IncomeReturns to scale: Example 2(, )F K LKL(,)F zK zLzKzLzKzL(, )z F K Ldecreasing returns to scale for any z 1zKL8CHAPTER 3 National IncomeReturns to scale: Example 3(, )F K LKL22(,)()()F zK zLzKzL22(, )z F K L2increasing return

6、s to scale for any z 1zKL222NOW YOU TRY: Returns to Scale( , )F K LKL( , )KF K LL2Determine whether each of these production functions has constant, decreasing, or increasing returns to scale:(a)(b)NOW YOU TRY: Answers, part (a)( , )KF K LL2()(,)zKF zK zLzL2z KzL22KzL2(, )zF K Lconstant returns to s

7、cale for any z 0NOW YOU TRY: Answers, part (b)( , )F K LKL(,)F zK zLzKzL()z KL(, )zF K Lconstant returns to scale for any z 012CHAPTER 3 National IncomeAssumptions1.Technology is fixed.2.The economys supplies of capital and labor are fixed at and KKLL13CHAPTER 3 National IncomeDetermining GDPOutput

8、is determined by the fixed factor supplies and the fixed state of technology:,()YF K L14CHAPTER 3 National IncomeThe distribution of national incomedetermined by factor prices, the prices per unit firms pay for the factors of production wage = price of Lrental rate = price of K15CHAPTER 3 National I

9、ncomeNotation W = nominal wage R = nominal rental rate P = price of output W /P = real wage (measured in units of output) R /P = real rental rate16CHAPTER 3 National IncomeHow factor prices are determinedFactor prices are determined by supply and demand in factor markets. Recall: Supply of each fact

10、or is fixed.What about demand? 17CHAPTER 3 National IncomeDemand for laborAssume markets are competitive: each firm takes W, R, and P as given.Basic idea:A firm hires each unit of labor if the cost does not exceed the benefit.cost = real wagebenefit = marginal product of labor18CHAPTER 3 National In

11、comeMarginal product of labor (MPL )definition:The extra output the firm can produce using an additional unit of labor (holding other inputs fixed):MPL = F (K, L +1) F (K, L)NOW YOU TRY: Compute & graph MPLa. Determine MPL at each value of L.b. Graph the production function.c. Graph the MPL curv

12、e with MPL on the vertical axis and L on the horizontal axis.LYMPL00n.a.110?219?3278434?540?645?749?852?954?1055?NOW YOU TRY: Answers21CHAPTER 3 National IncomeYoutputMPL and the production function LlaborF K L(, )1MPL1MPL1MPLAs more labor is added, MPL Slope of the production function equals MPL22C

13、HAPTER 3 National IncomeDiminishing marginal returnsAs a factor input is increased, its marginal product falls (other things equal). Intuition:Suppose L while holding K fixed fewer machines per worker lower worker productivityNOW YOU TRY: Identifying Diminishing Marginal ReturnsWhich of these produc

14、tion functions have diminishing marginal returns to labor? a) 215F K LKL(, )F K LKL(, )b) c) 215F K LKL(, )NOW YOU TRY: MPL and labor demandSuppose W/P = 6. If L = 3, should firm hire more or less labor? Why? If L = 7, should firm hire more or less labor? Why? LYMPL00n.a.1101021993278434754066455749

15、4852395421055125CHAPTER 3 National IncomeMPL and the demand for laborEach firm hires labor up to the point where MPL = W/P.Units of outputUnits of labor, LMPL, Labor demandReal wageQuantity of labor demanded26CHAPTER 3 National IncomeThe equilibrium real wageThe real wage adjusts to equate labor dem

16、and with supply.Units of outputUnits of labor, LMPL, Labor demandequilibrium real wageLabor supplyL27CHAPTER 3 National IncomeDetermining the rental rateWe have just seen that MPL = W/P.The same logic shows that MPK = R/P:diminishing returns to capital: MPK as K The MPK curve is the firms demand cur

17、ve for renting capital. Firms maximize profits by choosing K such that MPK = R/P. 28CHAPTER 3 National IncomeThe equilibrium real rental rateThe real rental rate adjusts to equate demand for capital with supply.Units of outputUnits of capital, KMPK, demand for capitalequilibrium R/PSupply of capital

18、K29CHAPTER 3 National IncomeThe Neoclassical Theory of Distributionstates that each factor input is paid its marginal producta good starting point for thinking about income distribution30CHAPTER 3 National IncomeHow income is distributed to L and Ktotal labor income =If production function has const

19、ant returns to scale, then total capital income =WLPMPLLRKPMPKKYMPLLMPKKlaborincomecapitalincomenationalincomeThe ratio of labor income to total income in the U.S., 1960-2007Labors share of total income0.00.20.40.60.81.01960196519701975198019851990199520002005Labors share of income is approximately

20、constant over time.(Thus, capitals share is, too.)32CHAPTER 3 National IncomeThe Cobb-Douglas Production FunctionThe Cobb-Douglas production function has constant factor shares: = capitals share of total income:capital income = MPK x K = Ylabor income = MPL x L = (1 )YThe Cobb-Douglas production fun

21、ction is:where A represents the level of technology.1YAK L33CHAPTER 3 National IncomeThe Cobb-Douglas Production FunctionEach factors marginal product is proportional to its average product:11YMPKAKLK(1)(1)YMPLAK LL34CHAPTER 3 National IncomeLabor productivity and wagesTheory: wages depend on labor

22、productivityU.S. data:periodproductivity growthreal wage growth1959-20072.1%2.0%1959-19732.8%2.8%1973-19951.4%1.2%1995-20072.5%2.4%35CHAPTER 3 National IncomeOutline of modelA closed economy, market-clearing modelSupply sideqfactor markets (supply, demand, price)qdetermination of output/incomeDemand

23、 sideqdeterminants of C, I, and GEquilibriumqgoods marketqloanable funds marketDONE DONE Next 36CHAPTER 3 National IncomeDemand for goods & servicesComponents of aggregate demand:C = consumer demand for g & sI = demand for investment goodsG = government demand for g & s(closed economy: n

24、o NX )37CHAPTER 3 National IncomeConsumption, Cdef: Disposable income is total income minus total taxes: Y T.Consumption function: C = C (Y T )Shows that (Y T ) C def: Marginal propensity to consume (MPC) is the change in C when disposable income increases by one dollar.38CHAPTER 3 National IncomeTh

25、e consumption functionCY TC (Y T )1MPCThe slope of the consumption function is the MPC.39CHAPTER 3 National IncomeInvestment, IThe investment function is I = I (r ), where r denotes the real interest rate, the nominal interest rate corrected for inflation. The real interest rate isthe cost of borrow

26、ing the opportunity cost of using ones own funds to finance investment spendingSo, r I 40CHAPTER 3 National IncomeThe investment functionrII (r )Spending on investment goods depends negatively on the real interest rate.41CHAPTER 3 National IncomeGovernment spending, GG = govt spending on goods and s

27、ervices. G excludes transfer payments (e.g., social security benefits, unemployment insurance benefits).Assume government spending and total taxes are exogenous: and GGTT42CHAPTER 3 National IncomeThe market for goods & servicesAggregate demand:Aggregate supply:Equilibrium:The real interest rate

28、 adjusts to equate demand with supply.()( )C YTI rG(, )YF K L = ()( )YC YTI rG43CHAPTER 3 National IncomeThe loanable funds marketA simple supply-demand model of the financial system.One asset: “loanable funds”demand for funds: investmentsupply of funds: saving“price” of funds: real interest rate44C

29、HAPTER 3 National IncomeDemand for funds: InvestmentThe demand for loanable fundscomes 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 (cost of borrowing).

30、 45CHAPTER 3 National IncomeLoanable funds demand curverII (r )The investment curve is also the demand curve for loanable funds.46CHAPTER 3 National IncomeSupply of funds: SavingThe supply of loanable funds comes from saving:Households use their saving to make bank deposits, purchase bonds and other

31、 assets. These funds become available to firms to borrow to finance investment spending. The government may also contribute to saving if it does not spend all the tax revenue it receives. 47CHAPTER 3 National IncomeTypes of savingprivate saving= (Y T ) Cpublic saving = T Gnational saving, S = privat

32、e saving + public saving= (Y T ) C + T G = Y C G48CHAPTER 3 National IncomeNotation: = change in a variableFor any variable X, X = “the change in X ” is the Greek (uppercase) letter DeltaExamples:If L = 1 and K = 0, then Y = MPL. More generally, if K = 0, thenYMPLL. (YT ) = Y T , so C = MPC ( Y T )

33、= MPC Y MPC T NOW YOU TRY: Calculate the change in savingSuppose MPC = 0.8 and MPL = 20.For each of the following, compute S :a. G = 100b. T = 100c. Y = 100d. L = 10NOW YOU TRY: AnswersS0.8()YYTG 0.20.8YTG 1. 0a0S 0.800b.108S 0.200c.102S MPL201020 ,d.0YL 0.20.220040.SY YCG 51CHAPTER 3 National Incom

34、eBudget surpluses and deficitsIf T G, budget surplus = (T G ) = public saving.If T 0big tax cuts: T 0Both policies reduce national saving:()SYC YTGGS TCS 60CHAPTER 3 National IncomeCASE STUDY: The Reagan deficitsrS, I1SI (r )r1I1r22. which causes the real interest rate to riseI23. which reduces the

35、level of investment.1. The increase in the deficit reduces saving2S61CHAPTER 3 National IncomeAre the data consistent with these results?variable1970s1980sT G2.23.9S19.617.4r1.16.3I19.919.4TG, S, and I are expressed as a percent of GDPAll figures are averages over the decade shown.NOW YOU TRY: The e

36、ffects of saving incentivesDraw the diagram for the loanable funds model. Suppose the tax laws are altered to provide more incentives for private saving. (Assume that total tax revenue T does not change)What happens to the interest rate and investment? 63CHAPTER 3 National IncomeMastering the loanab

37、le funds model, continuedThings that shift the investment curve:some technological innovations to take advantage some innovations, firms must buy new investment goodstax laws that affect investment e.g., investment tax credit64CHAPTER 3 National IncomeAn increase in investment demandAn increase in d

38、esired investmentrS, II1SI2r1r2raises the interest rate.But the equilibrium level of investment cannot increase because thesupply of loanable funds is fixed.65CHAPTER 3 National IncomeSaving and the interest rateWhy might saving depend on r ?How would the results of an increase in investment demand

39、be different?Would r rise as much?Would the equilibrium value of I change?66CHAPTER 3 National IncomeAn increase in investment demand when saving depends on rrS, II(r)( )S rI(r)2r1r2An increase in investment demand raises r, which induces an increase in the quantity of saving,which allows I to incre

40、ase.I1I267CHAPTER 3 National IncomeFYI: Markets, Intermediaries, the 2008 CrisisIn the real world, firms have several options for raising funds they need for investment, including:borrow from bankssell bonds to saverssell shares of stock (ownership) to saversThe financial system includes:bond and stock markets, where savers directly provide funds to firms for investmentfinancial intermediaries, e.g. banks, insurance companies, mutual funds, where savers indirectly provide funds to firms for investment68CHAPTER 3 National IncomeFYI: Markets, Intermediari