Lecture 5 The Product Market Analysis(宏观经济学(南开大学,龚

Lecture5ProductMarketAnalysis:HowIsOutputDetermined?MacroeconomicsI.IntroductionTheobjectiveofthischapteristostudyhowoutputisdeterminedinKeynesianframework.Theanalysisofoutputdeterminationinthischapterisoftennamedasmultiplieranalysis.Thetradingprocess:atradingdayinJevitsCenter(seetextbook).II.TheBasicHypothesisHypothesis1:Theagentdoesnothavefullconfidenceexpectation(indicating……).Hypothesis2:Thereisnorestrictioninthecapacitytosupplyoutputasdemandedintheeconomy.Hypothesis3:Thepriceisgiven(orhasbeendeterminedseparately).III.ConsumptionDeterminationTheautonomousdemandandnon-autonomousdemandThenon-autonomousdemandisthedemandthatisrelatedtoarecentsalefromwhichtheexpenditureissupposedtoberecovered.Theautonomousdemandisdemandthatisnotrelatedtoarecentsale.III.ConsumptionDeterminationConsumptioncanbedividedintotwoparts:Theincome-related(non-autonomous)consumptionNon-income-relatedconsumption(oftennamedautonomousconsumption)Remark:Examples?III.ConsumptionDeterminationTheConsumptionFunctionAccordingly,theconsumptionfunctioncanbewrittenasC=A+cY(1)whereAcanberegardedasautonomousconsumptionandcYastheincome-related(non-autonomous)consumption.Notethatalso1c0.III.ConsumptionDeterminationConsumptionFunction(continued):III.ConsumptionDeterminationSavingSaving(S)istheincomethatisnotusedforconsumption.Savingfunction:S=Y-C=Y-(A+cY)=-A+(1-c)YIII.ConsumptionDeterminationSaving(continued)III.ConsumptionDeterminationSomeConceptsAveragepropensitytoconsume(APC)APC=C/YAveragepropensitytosave(APS)APS=S/YMarginalpropensitytoconsume(MPC)MPC=C/YMarginalpropensitytosave(MPS)MPS=S/YIII.ConsumptionDeterminationNonlinearConsumptionFunctionPerhaps,amorereasonableconsumptionfunctionisanonlinearfunction.Inthiscase,MPCisdeclining.ThisisindeedsuggestedbyKeynesinhisGeneralTheory.Remark:Whymorereasonable?III.ConsumptionDeterminationNonlinearConsumptionFunction(continued)IV.TheOutputDeterminationinaSimpleEconomyTheso-calledsimpleeconomyistheeconomyinwhichthereisnogovernmentsector;thereisnoimportandexport.IV.TheOutputDeterminationinaSimpleEconomyAggregateDemandInmacroeconomics,aggregatedemand(AD)canbedefinedasthesumofconsumption(C),grossinvestment(I),governmentexpenditure(G)andnetexport(E-M).AD=C+I+G+E-MIV.TheOutputDeterminationinaSimpleEconomyAggregateDemand(continued)ThisindicatesthatGDPisindeedtheaggregatedemand(AD)plusinventorychange(V).GDP=AD+VInasimpleeconomy,theaggregatedemandisequaltoconsumptionplusinvestment:AD=C+I(2)IV.TheOutputDeterminationinaSimpleEconomyAggregateDemand(continued)Assumethatthechangeininventoryisequalto0:V=0Accordingly,wehaveGDP=ADIV.TheOutputDeterminationinaSimpleEconomyTheAggregateIncomeAccordingtoincomeapproach,GDPisalsoreflectedasincome(Y)sothatY=AD(3)IV.TheOutputDeterminationinaSimpleEconomyTheModelofOutputDeterminationGivenbyequation(1)-(3):C=A+cY(1)AD=C+I(2)Y=AD(3)IV.TheOutputDeterminationinaSimpleEconomyTheModelofOutputDetermination(continued)Solution(4)Thegraphicrepresentationofsolution(seethefigureinthenextpage))(11IAcYIV.TheOutputDeterminationinaSimpleEconomyTheModelofOutputDetermination(continued)IV.TheOutputDeterminationinaSimpleEconomyTheequilibriumintheproductmarket(continued)Equation(4),whichisthesolutiontothemodel,representstheequilibriumconditionintheproductmarket.Thisequilibriumiscertainlynotdemand-supplyequilibriumasintheusualmicroeconomicanalysis.Itisanequilibriuminthedynamicsense:thefixedpoint,thesteadystate.IV.TheOutputDeterminationinaSimpleEconomyTheequilibriumintheproductmarket(continued)Toseewhywecanunderstandtheequilibriumintermsofdynamics,wemayreconstructthemodelasfollows1ttttttttCAcYYCIIIAAIV.TheOutputDeterminationinaSimpleEconomyTheequilibriumintheproductmarket(continued)Thismodelcanbetransformedintoanonedimensionaldiscretetimesystem:ThesteadystateThesolutionpath(seethefigureinthenextpage)1ttYAIcY*1()1YAIcIV.TheOutputDeterminationinaSimpleEconomyTheequilibriumintheproductmarket(continued)IV.TheOutputDeterminationinaSimpleEconomyTheequilibriumintheproductmarket(continued)Investment-Saving(IS)Relation•Theequilibriumintheproductmarketindicatesthatinvestmentequalssaving.•Therefore,theequation(4),whichisthesolutiontothemodel,issometimealsocalledIScurve.•Itrepresentstheequilibriumconditioninproductmarket,giventheautonomousdemandAandI.V.WhyMultiplier?ConsidernowachangeininvestmentdenotedasI.ItwillcausetheoutputincreasebyI/(1-c):Apparently,achangeininvestmentwillcausethechangeinoutputbyamultiplier1/(1-c)1.IcY11V.WhyMultiplier?MultiplierProcessinitialchangeininvestment=IinitialchangeinincomeIfirstchangeinconsumption=cIfirstchangeinincomecIsecondchangeinconsumption=c2Isecondchangeinincomec2I:V.WhyMultiplier?MultiplierProcess(continued)Y=(1+c+c2+c3+...)IIcY11V.WhyMultiplier?Definition:ThemultiplierprocessistheincomeandoutputgenerationprocessstartingwiththeinjectionofanautonomousdemandsuchasIwiththetotalgeneratedoutputorincomeYtobesatisfied(inasimpleeconomy)withIcY11VI.OutputDeterminationin