Презентация Economy in the short-run: two factor income-expenditure model онлайн
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Слайды и текст к этой презентации:
№1 слайд
Содержание слайда: Economy in the short-run: two factor income-expenditure model
ANDRZEJ CWYNAR, UITM RZESZÓW
№2 слайд
Содержание слайда: Lecture objectives
What is the essence of the Keynesian doctrine?
How can economic crises be explained by the aggregate demand fluctuations?
What are the key factors determining consumption and investment?
What is the meaning of so called „multiplier” in the vulnerability of the economy to crises?
№3 слайд
Содержание слайда: John Maynard Keynes
(1883-1946)
Model explaining causes of crises and suggesting methods of counteracting them.
„The General Theory of Employment, Interest and Money”
№4 слайд
Содержание слайда: The Keynesian perspective
Aggregate demand as the cause of crises
Government intervention as the remedy for crises
Equilibrium with unemployment
№5 слайд
Содержание слайда: Model assumptions
Two factor analysis: the only types of economic subjects are domestic households and firms
(H and F)
Crisis circumstances: there are production factors that are not used (actual production is smaller than potential production)
Price stability: short-run approach (short enough to assume that prices don’t change)
One dimension: the subject of the analyses is the market for goods and services
№6 слайд
Содержание слайда: Circular flow in the model
№7 слайд
Содержание слайда: The essence of aggregate demand
Aggregate demand (AD): sum of expenditures for various goods and services that are planned at various levels of current income (Y).
Consumption (C): expenditures for consumption goods planned by households.
Investment (I): expenditures for investment goods (including inventory) planned by firms.
AD = C + I
№8 слайд
Содержание слайда: Consumption component of AD
Two things concerning „C” must be noted:
it is directly dependent on households’ income
it can be financed not only by current income but also by past or future income
The relationship between „C” and current income can be presented as marginal propensity to consume (MPC).
The part of „C” which is independent of current income is known as autonomous consumption (CA).
№9 слайд
Содержание слайда: Marginal propensity to consume
Marginal propensity to consume (MPC):
the fraction of the additional current income which households are going to spend on additional consumption.
MPC = ΔC/ΔY
№10 слайд
Содержание слайда: Autonomous consumption
Autonomous consumption (CA): the part of consumption that is not financed by current income (consumption that does not depend on current income).
Yet, it can be covered by past income (i.e. saving) or future income (i.e. borrowing).
№11 слайд
Содержание слайда: Consumption function
Notice that MPC and CA are key variables in consumption function formula:
1) MPC is responsible for the slope
2) CA is responsible for the intercept point (and the parallel shifts of the line).
№12 слайд
Содержание слайда: Technical note
Changes in nouseholds’ current income result in shifts along the consumpion line.
Changes in the autonomous consumption result in parallel movements of the consumption line.
Changes in MPC result in the different angle of the consumption line.
№13 слайд
Содержание слайда: Saving
Saving means unconsumed income.
Y = C + S
C = MPC×Y + CA
S = MPS×Y – CA
Marginal propensity to save (MPS):
the fraction of the additional current income which households are going to save.
№14 слайд
Содержание слайда: Saving function
Notice that saving function is the mirror reflection of the consumption function formula:
1) MPS is responsible for the slope
2) CA is responsible for the intercept point.
№15 слайд
Содержание слайда: Investment component of AD
Special status in the Keynesian doctrine
Outstanding variability
Independent of the current state of the economy (including current income); in that sense they’re fully autonomous
Dependent on factors such as:
expectations concerning future terms of business
interest rates
№16 слайд
Содержание слайда: Investment function
№17 слайд
Содержание слайда: Aggregate demand: recollection
Aggregate demand: the sum of households’ and firms’ expenditures (for consumption and investments, respectively) planned at various levels of current income.
AD = C + I
№18 слайд
Содержание слайда: Aggregate demand function
№19 слайд
Содержание слайда: 45 degrees line
At any point on the 45° line the distance to the horizontal axis is the same as the distance to the vertical axis.
The 45° line joins points at which AD (demand) equals Y (supply).
№20 слайд
Содержание слайда: Check point: the meaning of „Y”
So far the letter „Y” was using to denote „income”.
From now on it will be used to denote not only „income” but also „production”.
How can we justify such decision?
№21 слайд
Содержание слайда: Keynesian cross
Plotting AD and 45 degrees lines on the same chart allows you to study equilibium and disequilibrium terms in the market for goods and services.
№22 слайд
Содержание слайда: Equilibrium & equilibrium output
Equilibrium output (YE): the level of GDP at which the aggregate demand for output equals the amount that is produced.
DEMAND = SUPPLY
№23 слайд
Содержание слайда: Short-run equilibrium in the market for goods and services
№24 слайд
Содержание слайда: Equilibrium: numerical example (static analysis)
C = 50 + 0,7×Y
S = – 50 + 0,3×Y
I = 400
AD = C + I = 450 + 0,7×Y
№25 слайд
Содержание слайда: Equilibrium: two approaches
First approach:
AD = Y
450 + 0,7×Y = Y
YE = 1500
Second approach:
S = – 50 + 0,3×1500 = 400 = I
S = I
№26 слайд
Содержание слайда: Disequilibrium: shortage (insufficient production)
STATUS
№27 слайд
Содержание слайда: Disequilibrium: surplus (excess production)
STATUS
№28 слайд
Содержание слайда: Beware of the misunderstanding!
At the short-run disequilibrium:
Splanned ≠ Iplanned
Sactual = Iactual
№29 слайд
Содержание слайда: Equilibrium: numerical example (dynamic analysis)
Assume that:
C = 50 + 0,7×Y
I = 400 → I’ = 550 (ΔI = 150)
AD’ = 600 + 0,7×Y
YE’ = 2000
YE’ = 2.000
ΔYE/ΔI = 500/150 = 3,33
№30 слайд
Содержание слайда: Investment multiplier
Investment multiplier: a measure that informs how many times the change in the equilibrium output (that is reaction to the change in investment) will be greater than the change in invesment.
M = ΔYE/ΔI = 1/(1 – MPC)
№31 слайд
Содержание слайда: Investment multiplier and economic cycles
Higher multiplier >>> more volatile GDP
Lower multiplier >>> less volatile GDP
№32 слайд
Содержание слайда: Check point: true / false test
The Keynesian model assumes that the production is basically determined by the demand.
Sum of marginal propensity to consume and marginal propensity to save equals 1.
Planned saving is always the same as planned investment.
The slope of the consumption function depends solely on the autonomous consumption.
Consumption is zero when the income at households’ disposal is also zero
№33 слайд
Содержание слайда: Check point: true / false test (cont.)
The relation of consumption planned by households to their income at disposal is named marginal propensity to consume.
The higher marginal propensity to consume, the more steep aggregate demand line.
Investment is inversely dependent on the interest rate.
Change in investment always causes shifts of AD line down.
Investment multiplier equals 1/marginal propensity to save
№34 слайд
Содержание слайда: Test your understanding: matching
№35 слайд
Содержание слайда: Lecture objectives
What is the essence of the Keynesian doctrine?
How can economic crises be explained by the aggregate demand declines?
What are the key factors determining consumption and investment?
What is the meaning of so called „multiplier” in the vulnerability of the economy to crises?
№36 слайд
Содержание слайда: Textbooks
O’Sullivan & Sheffrin: chapter 11, „The Income-Expenditure Model”
Krugman & Wells: chapter 27, „Dochody
i wydatki”
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