Bài giảng MicroEconomics - Chapter 027 Basic Macroeconomic Relationships

BasicMacroeconomicRelationshipsChapter 27McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesEffect of changes in income on consumption (and saving)Other factors that affect consumptionEffect of changes in real interest rates on investmentOther factors that affect investmentChanges in investment have a multiplier effect on real GDPBasic RelationshipsIncome and consumptionIncome and savingDisposable income (DI)45°line for referenceC = DI on the LineS = DI - CIncome and ConsumptionConsumption (billions of dollars)Disposable Income (billions of dollars)45° Reference LineC=DI8386858488899190879293949501979699980002050304ConsumptionIn 1992SavingIn 199245°CSource: Bureau of Economic AnalysisConsumption and SavingThe consumption scheduleThe saving scheduleBreak-even incomeAverage propensity to consume (APC)Average propensity to save (APS)APS =SavingIncomeAPC =ConsumptionIncomeConsumption and SavingMarginal propensity to consume (MPC)Marginal propensity to save (MPS)MPC =Change in ConsumptionChange in IncomeMPS =Change in SavingChange in IncomeConsumption and Saving(1)Level ofOutputAndIncome(GDP=DI)(2)Consump-tion(C)(3)Saving (S)(1) – (2)(4)AveragePropensityto Consume(APC)(2)/(1)(5)AveragePropensityto Save(APS)(3)/(1)(6)MarginalPropensityto Consume(MPC)Δ(2)/Δ(1)(7)MarginalPropensityto Save(MPS)Δ(3)/Δ(1)$370 390 410 430 450 470 490 510 530 550$375390405420435450465480495510$-505101520253035401.011.00.99.98.97.96.95.94.93.93-.01.00.01.02.03.04.05.06.07.07.75.75.75.75.75.75.75.75.75.25.25.25.25.25.25.25.25.25MPC + MPS = 1MPC and MPS measure slopes50047545042540037545°Consumption and Saving5025 0390 410 430 450 470 490 510 530 550390 410 430 450 470 490 510 530 550CSConsumptionScheduleSaving ScheduleSaving $5 BillionDissaving $5 BillionDissaving$5 BillionSaving $5 BillionDisposable Income (billions of dollars)Consumption (billions of dollars)Saving(billions of dollars)Average Propensity to ConsumeSource: Statistical Abstract of the United States, 2006Selected Nations, with respect to GDP, 2006United StatesCanadaUnited KingdomJapanGermanyNetherlandsItalyFrance.80 .85 .90 .95 1.00 Consumption and SavingNonincome determinants of consumption and savingWealth BorrowingExpectationsReal interest ratesConsumption and SavingOther important considerationsChanges along schedulesSwitch to real GDPSchedule shiftsStabilityTaxation45°Consumption and SavingC0S0Disposable Income (billions of dollars)Consumption (billions of dollars)Saving(billions of dollars)C2C1S1S2Interest Rate and InvestmentExpected rate of return (r)The real interest rate (i) Nominal rate less rate of inflationMeaning of r = iInvestment demand curveInvestment Demand CurveExpectedRate ofReturn (r)CumulativeAmount ofInvestmentHaving ThisRate ofReturn or Higher(I)16%14%12%10%8%6%4%2%0%$ 0510152025303540 r and i (percent)16141210864205 10 15 20 25 30 35 40 Investment (billions of dollars)IDInvestment Demand CurveShifts of the curveAcquisition, maintenance, and operating costsBusiness taxesTechnological changeStock of capital goods on handPlanned inventory changesExpectations r and i (percent)0Investment (billions of dollars)ID0ID1ID2Increase in Investment DemandDecrease in Investment DemandInvestment Demand CurveInvestment DemandInstability of investmentDurabilityIrregularity of innovationVariability of profitsVariability of expectationsGross Investment ExpenditureSource: International Monetary FundPercent of GDP, Selected Nations, 2006South KoreaJapanCanadaMexicoFranceUnited StatesSwedenGermanyUnited Kingdom0 10 20 30Volatility of InvestmentSource: Bureau of Economic Analysis27-19The Multiplier EffectMultiplier =Change in Real GDPInitial Change in SpendingMore spending results in higher GDPInitial change in spending changes GDP by a multiple amountThe Multiplier EffectCauses of the initial change in spendingChanges in investmentOther changesRationaleDollars spent are received as incomeIncome received is spent (MPC)Initial changes in spending cause a spending chain(1)Change inIncome(2)Change inConsumption(MPC = .75)(3)Change inSaving(MPC = .25)Increase in Investment of $5Second RoundThird RoundFourth RoundFifth RoundAll other rounds Total$ 5.003.752.812.111.584.75$ 20.00$ 3.752.812.111.581.193.56$ 15.00$ 1.25.94.70.53.391.19$ 5.00Rounds of Spending12345All$20.0015.2513.6711.568.755.00$5.00$3.75$2.81$2.11$1.58$4.75ΔI=$5 billionThe Multiplier EffectThe Multiplier EffectMultiplier =11 - MPCMultiplier =1MPS-or-The Multiplier and the MPC105432.5.67.75.8.9MPCMultiplierSquaring the Economic CircleHumorist Art Buchwald and the multiplierSuppose one person can’t buy a productOthers subsequently impacted and cannot buy other itemsMultiple effects impact psycheUltimately causes multiple step impact upon the economy as a wholeKey Terms45°(degree) lineconsumption schedulesaving schedulebreak-even incomeaverage propensity to consume (APC)average propensity to save (APS)marginal propensity to consume (MPC)marginal propensity to save (MPS)wealth effectexpected rate of returninvestment demand curvemultiplierNext Chapter PreviewThe AggregateExpenditures Model