約克大學(xué)summer math 宏觀經(jīng)濟(jì)lecture 2

1、Macroeconomics Lecture 2: The Goods Market and the Keynesian Multiplier The Components of Expenditure of GDP The Components of Expenditure of GDP 1. Consumption expenditure The total amount which the private consumers in the domestic economy spend on consumption goods and services produced both in t

2、he domestic economy and abroad. 2. Investment The total amount which the private sector of the domestic economy spends on investment goods produced both in the domestic economy and abroad. The Components of Expenditure of GDP 3. Government expenditure The total amount which the government sector of

3、the domestic economy spends on goods and services produced both in the domestic economy and abroad. 4. Exports The total amount which the rest of the world spends on goods and services produced in the domestic economy. 5. Imports The sub-total of the first three categories which consists of expendit

4、ure on goods and services produced abroad. The Components of Expenditure of GDP -10 0 10 20 30 40 50 60 70 80 1971Q1 1972Q1 1973Q1 1974Q1 1975Q1 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1

5、998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 percentage Expenditure shares, UK consumptiongovernment consumptiongross fixed capital formationnet exports (x-m) The Components of Expenditure of GDP -10 0 10 20 30 40 50 60 70 80 1971Q1 1972Q1 1973Q1 1974Q1 1

6、975Q1 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 1989Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 percentage Expenditure shares, US consumptiongove

7、rnment consumptiongross fixed capital formationnet exports (x-m) The Demand for Goods Theory This follows Blanchard (2010) chapter 3 quite closely This exposition is Keynesian (explicitly following Hicks) Bottom line is that Demand pretty much determines production (assumptions to be questioned late

8、r) Total demand for goods is defined as (a definition is an identity hence sign) IMXGICZ The Demand for Goods Theoretical assumptions 1. Assume that all firms produce the same good, which can then be used by consumers for consumption, by firms for investment, or by the government. 2. Assume that fir

9、ms are willing to supply any amount of the good at a given price, P, and demand in that market. 3. Assume that the economy is closed, that it does not trade with the rest of the world, then both exports and imports are zero (X = IM = 0). Consumption Disposable income, (YD), is the income that remain

10、s once consumers have paid taxes and received transfers from the government. The function C(YD) is called the consumption function. It is a behavioral equation, that is, it captures the behavior of consumers. A more specific version is: D YCC Ccc YD 01 Consumption Properties of Sometimes called the

11、Keynesian consumption function c1 is the marginal propensity to consume: c0 is autonomous consumption: c0 and c1 are model parameters D YccC 10 10 1 c 0 0 c 3-2 The Demand for Goods Consumption (C) Consumption increases with disposable income but less than one for one. Consumption and Disposable Inc

12、ome Figure 3 - 1 The Keynesian Consumption Function Criticisms: Behavioural but not microfounded Justification (empirical): consumption share of GDP approximately constant over time (note the Keynesian function strictly predicts it to be declining if )0 0 c The Keynesian Consumption Function Critici

13、sms: Behavioural but not microfounded Justification (theoretical): a reasonable behavioural rule of thumb. e.g. if you were given any amount of money, x, what would you do? Fair to say you might spend part of it (c1) and save the rest? Exogenous variables Investment (I) Government spending, G Taxes,

14、 T Note that more complicated models can have these variables as endogenous, for the time being we will treat them as exogenous. II Fiscal Policy Investment -15 -10 -5 0 5 10 15 1972Q1 1973Q1 1974Q1 1975Q1 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 1981Q1 1982Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 198

15、9Q1 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 percentage Annual rates of change of GDP shares: UK consumptioninvestment Investment Theories of investment emphasize The real interest rate (r) wher

16、e i is the nominal interest rate and is inflation GDP growth (financial accelerator theories) Expectations Animal instincts (Keynes) ir Investment and real interest rates 10 12 14 16 18 20 22 24 -10-8-6-4-20246810 investment share real interest rate Investment share vs real interest rate, UK, 1977-2

17、010 Investment observations Investment not clearly related to other variables Hence a justification for taking it as given (i.e. following Keynes/Hicks) Government expenditure In the model G denotes goods and services that the government wishes to buy It does not include transfers (note double count

18、ing problem) UK Public Sector Spending -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Q4-2012 Proprtion of GDP Public Sector Expenditure total exp (not G)net capital expGovernment c

19、onsumptioninterest paymentssocial securityother Government Spending observations G treated as exogenous in basic model Alternative theories examining government decisions: Public choice theory Partisan decision-making Lobbying/interest groups Median voter results The Keynesian IS/LM model emphasises

20、 market failures (sustained disequilibrium) hence focus on private sector Determination of Equilibrium Output Given a closed economy, then and equilibrium in the goods market requires that production (Y) equals demand, hence (3.7) GITYccZ IMXGICZ 10 GITYccY 10 Determination of Equilibrium Output You

21、 should be able to solve for Y, i.e. rearrange (3.7) to give (3.8) Note that and T are autonomous spending, and that is a fixed parameter. 1 10 1 c TcGIc Y GIc, 0 1 c Determination of Equilibrium Output Implications: 1. Most important: the multiplier: (to be continued) 2. Balanced Budget G=T. If the

22、n bigger government implies bigger Y. TcGIc cc TcGIc Y 10 11 10 1 1 1 10 1 c 1 1 1 c Determination of Equilibrium Output An equivalent condition for equilibrium output is: The equation above states that equilibrium in the goods market requires that investment equals savingthe sum of private plus pub

23、lic saving. This equilibrium condition for the goods market is called the IS relation. What firms want to invest must be equal to what people and the government want to save. ISTG() 3-3 Graphical Presentation 011 ()ZcIGcTcY First, plot production as a function of income identical by definition Secon

24、d, plot demand (Z) as a function of income. In Equilibrium, production equals demand. Equilibrium output is determined by the condition that production be equal to demand. Equilibrium in the Goods Market Figure 3 - 2 An increase in autonomous spending has a more than one- for-one effect on equilibri

25、um output. The Effects of an Increase in Autonomous Spending on Output Figure 3 - 3 3-3 Graphical Analysis of an increase in autonomous expenditure Note that the mechanism through which this works entails a very compliant supply side. Initial increase in autonomous expenditure entails ABC (increase

26、= $1bn) At C demandproduction hence production increases CDE (increase = c1$1bn) At E demandproduction (increase = $1bn Full increase in Y is given by 3-3 Graphical Analysis of an increase in autonomous expenditure 2 1 c 1 3 1 2 11 1 1 1$ .11$ c bn cccbn The multiplier Using the consumption ratio da

27、ta as a proxy for the MPC, then The government spending multiplier is 3 and the tax cut multiplier is 2 Problems in reality Crowding out (via endogenous interest rate increases: see IS/LM model) Behaviour of firms (price increases vs quantity increases: see AS/AD model) 3 1 1 66. 0 1 1 c c How long

28、does it take? Describing formally the adjustment of output over time is what economists call the dynamics of adjustment. Suppose that firms make decisions about their production levels at the beginning of each quarter. Now suppose consumers decide to spend more, that they increase c0. Having observe

29、d an increase in demand, firms are likely to set a higher level of production in the following quarter. In response to an increase in consumer spending, output does not jump to the new equilibrium, but rather increases over time. Is the government omnipotent? Changing government spending or taxes is

30、 not always easy. The responses of consumption, investment, imports, etc, are hard to assess with much certainty. Anticipations are likely to matter. Achieving a given level of output can come with unpleasant side effects. Budget deficits and public debt may have adverse implications in the long run Application: the US Fiscal stimulus c. $787bn inves