《西方经济学》课程PPT教学课件（宏观经济学）Chapter 03 Where NI comes from and goes

CHAPTER THREE National Income: Where it Comes From and Where it Goes macroeconomics N.Gregory Mankiw College of Management,HUST

macroeconomics N. Gregory Mankiw macro College of Management, HUST CHAPTER THREE National Income: Where it Comes From and Where it Goes

Learning objectives what determines the economy's total output/income how the prices of the factors of production are determined how total income is distributed what determines the demand for goods and services how equilibrium in the goods market is achieved CHAPTER 3 National Income slide 1

CHAPTER 3 National Income slide 1 Learning objectives ▪ what determines the economy’s total output/income ▪ how the prices of the factors of production are determined ▪ how total income is distributed ▪ what determines the demand for goods and services ▪ how equilibrium in the goods market is achieved

Content 1.Factors determine the total output/income 2.Distribution of national income 3.Goods market equilibrium 4.Loanable funds market equilibrium 5.General equilibrium and changing of S,I 6.Chapter summary CHAPTER 3 National Income slide 2

CHAPTER 3 National Income slide 2 Content 1. Factors determine the total output/income 2. Distribution of national income 3. Goods market equilibrium 4. Loanable funds market equilibrium 5. General equilibrium and changing of S, I 6. Chapter summary

Total Output Is Determined By Factors of production: K =capital L =labor the economy's level of technology, expressed by production function, denoted Y=F(K,L) CHAPTER 3 National Income slide 3

CHAPTER 3 National Income slide 3 Total Output Is Determined By ▪ Factors of production: K =capital L = labor ▪ the economy’s level of technology, expressed by production function, denoted Y = F (K,L) 1

Returns to scale:a review Initially Y=F(K,L) Scale all inputs by the same factor z: K2=zK and L2=L (If 1.25,then all inputs are increased by 25%) What happens to output,Y2=F(K2,L2)? If constant returns to scale,Y2=Y If increasing returns to scale,Y2>Y If decreasing returns to scale,Y2<Y CHAPTER 3 National Income slide 4

CHAPTER 3 National Income slide 4 Returns to scale: a review Initially Y1 = F (K1 ,L1 ) Scale all inputs by the same factor z: K2 = zK1 and L2 = zL1 (If z = 1.25, then all inputs are increased by 25%) What happens to output, Y2 = F (K2 ,L2 ) ? ▪ If constant returns to scale, Y2 = zY1 ▪ If increasing returns to scale, Y2 > zY1 ▪ If decreasing returns to scale, Y2 < zY1 1

Assumptions of the model 1.Technology is fixed. 2.The economy's supplies of capital and labor are fixed at K=K and L=L 3.Output is determined by the fixed factor supplies and the fixed state of technology: Y=F(K,L) Return CHAPTER 3 National Income slide 6

CHAPTER 3 National Income slide 6 Assumptions of the model 1. Technology is fixed. 2. The economy’s supplies of capital and labor are fixed at 3. Output is determined by the fixed factor supplies and the fixed state of technology: K K L L = = and 1 Y F K L = ( ) , Return

The distribution of national income -The distribution of the total income is determined by factor prices,the prices per unit that firms pay for the factors of production. -The wage is the price of L,the rental rate is the price of K. CHAPTER 3 National Income slide 7

CHAPTER 3 National Income slide 7 The distribution of national income ▪ The distribution of the total income is determined by factor prices, the prices per unit that firms pay for the factors of production. ▪ The wage is the price of L, the rental rate is the price of K. 2

2 Notation W nominal wage R nominal rental rate P price of output WIP real wage (measured in units of output) R/P real rental rate CHAPTER 3 National Income slide 8

CHAPTER 3 National Income slide 8 Notation W = nominal wage R = nominal rental rate P = price of output W/P = real wage (measured in units of output) R/P = real rental rate 2

2 How factor prices are determined Factor prices are determined by supply and demand in factor markets. Factor price Factor supply Factor Equilibrium demand factor price Quantity of factor CHAPTER 3 National Income slide 9

CHAPTER 3 National Income slide 9 How factor prices are determined ▪ Factor prices are determined by supply and demand in factor markets. 2

2 Demand for labor Assume 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 wage benefit marginal product of labor MPL F(K,L+1)-F(K,L) CHAPTER 3 National Income slide 10

CHAPTER 3 National Income slide 10 Demand for labor ▪Assume 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 wage benefit = marginal product of labor ▪ MPL = F (K,L +1) – F (K,L) 2