macroeconomics

Mohr & Fourie: Chapter / Hoofstuk 18 +19

Introduction Inleiding

Micro (Ch. 7-14) Macro (Ch.15-17+18-23)

ECON111Production = Income =

Expenditure But …

◦ leakages & injections 4 participants

◦ C◦ I◦ G&T◦ X&Z

Mikro (Hfst. 7-14) Makro (Hfst. 15-17 +18-

23)

ECON111Produksie = Inkome = Besteding Maar ...

◦ ontrekkings & inspuitings 4 rolspelers

◦ C◦ I◦ G&T◦ X&Z

Overview 18+19 Oorsig 18+19

Ch.18◦ simplified model◦ Y = C+I

Ch. 19◦ add Government sector◦ Y = C + I + G◦ NB taxes impact on C

◦ add Overseas sector◦ Y = C + I + G + (X - Z)◦ NB. marginal

propensity to import (m)

Hfst. 18◦ eenvoudige model◦ Y = C + I

Hfst. 19◦ voeg Regering sektor

by◦ Y = C + I + G◦ NB. belasting se impak

op C◦ voeg Oorsese sektor by◦ Y = C + I + G + (X – Z)◦ NB. grens geneigdheid

om in te voer (m)

Outcomes Uitkomstes

All concepts …◦ Name◦ Discuss◦ Explain◦ Describe◦ Calculate◦ Graph

Leave out !◦ Box 18-5 + 18-9◦ Box 19-4 + 19-9

Alle konsepte◦ Noem◦ Bespreek◦ Verduidelik◦ Omskryf◦ Bereken◦ Teken (grafiek)

LOS !!!◦ Rame 18-5 + 18-9◦ Rame 19-4 + 19-9

Mohr & Fourie: Chapter / Hoofstuk 18ECON121_2011

Section 18-1 Afdeling 18-1

Chapter 3◦ flows & relationships

Chapter 4◦ National accounts◦ ex post … after the fact◦ production = income◦ equilibrium at same

level Macro theory

◦ no automatic equilibrium

Hoofstuk 3◦ vloeie & verhoudings

Hoofstuk 4◦ nasionale rekeninge◦ ex post ... na die daad◦ produksie = inkome◦ ewewig op selfde vlak

Makro Teorie◦ geen outomatiese

ewewig

B > I & P◦ D>S◦ Voorraad ◦ Produksie brei uit◦ Wanneer is B>I?

B < I & P◦ D<S◦ Voorraad ◦ Krimp produksie◦ Wanneer is B<I?

B = I & P◦ Alle produksie word

verkoop◦ Ewewig

Figuur 3-1: Die drie hoofvloeie in die ekonomie

Y = Nationale inkome of

produk

A = Totale besteding


A = Y◦ Equilibrium◦ no change

A > Y◦ Expand production

A < Y◦ Decrease production

A = Y◦ Ewewig◦ geen verandering

A > Y◦ Brei produksie uit

A < Y◦ Verminder produksie

A = Y en dit sal gebeur by

volleindiensname van produksie of

inkome

Yf

JB Say JB Say

A = Y ... Always Full employment level

Say’s Law◦ SUPPLY(Y) creates demand

(A)

◦ Y A

A = Y ... Altyd Volle indiensname peil

Wet van Say◦ AANBOD (Y) skep Vraag (A)o Y A

Keynes* Keynes*

A = Y ... Not automatic Great Depression

Keynes◦ DEMAND (A) creates

supply (Y)

◦ A Y

A = Y ... Nie outomaties nie Groot Depressie

Keynes◦ VRAAG (A) skep Aanbod (Y)

◦ A Y

Box 18-1 Raam 18-1

Synonyms Y (SUPPLY)

◦ Total production◦ Total Income◦ NNP, NI

A (DEMAND)◦ Total expenditure◦ Aggregate demand

Sinonieme Y (AANBOD)

◦ Totale produksie ◦ Totale inkome◦ NNP, NI

A (VRAAG)◦ Totale besteding◦ Totale vraag

Box 18-2 Raam 18-2

Assumptions Households+ firms NO

◦ G, X, Z Given (Fixed)

◦ P, w, i, Ms A Y ... Keynes

Aannames Huishoudings + firmas Geen

◦ G, X, Z Gegewe (vaste)

◦ P, w, i, Ms A Y ... Keynes


Models◦ Explain◦ Predict◦ Policy◦ FUTURE◦ ex ante

National accounts◦ Bookkeeping◦ PAST events◦ ex post

Modelle◦ Verklaar◦ Voorspel◦ Beleid◦ TOEKOMS◦ ex ante

Nasionale rekeninge◦ Boekhou◦ VERLEDE◦ ex post


Consumption expenditure

Largest component◦ C > I

Consumption Function ◦

◦ c ... MPC 3 NB Characteristics

(Consumption function):◦ Y C◦ Y > C◦ C > 0, even if Y=0

Verbruiksbesteding Grootste komponent

◦ C > I Verbruiksfunksie

◦

◦ c ... MPC 3 belangrike kenmerke

(verbruiksfunksie):◦ Y C◦ Y > C◦ C > 0, al is Y=0

cYCC cYCC

3 belangrike kenmerke:Y CY > CC > 0, al is Y=0

Geïnduseerde komponentOutonome komponent

Fig.18-1, 18-2cYCC

3 NB Characteristics: Y C Y > C C > 0, even if Y=0

Induced component Autonomous component

Box 18-3 Raam 18-3

Non-income determinants

Autonomous Consumption

Interest rates

Expectations

Wealth

Income distribution

Other

Nie-Inkome determinante

Outonome Verbruik

Rente koerse

Verwagtings

Rykdom

Inkome verdeling

Ander

Box 18-4 Raam 18-4

Savings Y = C + S … S = Y - C 1 = c + s 1 = mpc + mps c = 1 - s

◦ slope◦ c = mpc◦ 0 < c < 1

S = Y - C

Spare Y = C + S … S = Y - C 1 = c + s 1 = mpc + mps c = 1 - s

◦ helling◦ c = mpc◦ 0 < c < 1

S = Y - C

cYCC

YcCS )1(

cYCC

YcCS )1(

Exercise Oefening

C = ??? if mps = 15% autonomous C = 300

C = ??? indien mps = 15% autonome C = 300


Investment Expenditure Volatile Capital Goods Independent w.r.t. Y Determinants

◦ Cost of KG◦ Cost of money (i)◦ Expected income

Investment option Fig. 18-3 & 18-4

Investerings spandering Wisselvallig Kapitaal Goedere Onafhanklik t.o.v. Y Determinante

◦ Koste van KG◦ Koste van geld (i)◦ Verwagte inkome

Investering opsie Fig. 18-3 & 18-4

I = Ī

Hoër rentekoers ... laer verwagte opbrengs

Laer opbrengs ... minder investering

Figuur 18.3

Box 18-6 Raam 18-6

In EQUILIBRIUM ... Planned savings = planned

investment (S = I) Exercise

◦ C = 50 + 0.8Y◦ I = 150

Rewrite C = … to S = … Then solve I = S

In EWEWIG ... Beplande spare = Beplande

investering (S = I) Oefening

◦ C = 50 + 0.8Y◦ I = 150

Herskryf C = ... na S = ... Dan los op vir I = S

S = -C + Y(1-c)

Section 18-5, 18-6 Afdeling 18-5, 18-6

Total Expenditure (A) A = C + I

Totale spandering (A) A = C + I

Exercise Oefening

Calculate Ye

C = 160 + 0.6Y I = 600

Bereken Ye

C = 160 + 0.6Y I = 600


A = Y

Ye = α(Ā)

Multiplier Vermenigvuldiger

Memorise the full α Replace with zeros where

data is missing

Leer die volle α Vervang nulle in waar data

kort

mtc

)1(1

1


Definition … Change …

End …

MPC = c◦ impact on size

Re-spending of money

Definisie ... Verandering ...

Uiteinde ...

MPC = c◦ invloed op grootte

Her-besteding van geld

AY

AYe

AY

AYe


MPC = c

◦MPC α

MPC = c

◦MPC α

A Ynuwe Ye / new Ye

NB! …

Draw / teken A1 & A2

bereken / calculate

Y1 & Y2

A1 & A2

Y α

Exercise Oefening

C =10+0.75Y & I = 5

1. Calculate α

2. Calculate Ye

C =10+0.75Y & I = 51. Bereken α2. Bereken Ye

HW Exercise HW Oefening

C = 200 + 0.56Y & I = 400

1. Calculate α

2. Calculate Ye

if I increases to 600.

4. Calculate Ye

C = 200 + 0.56Y & I = 4001. Bereken α2. Bereken Ye

as I styg tot 6004. Bereken / Calculate Ye

Mohr & Fourie: Chapter / Hoofstuk 18

ECON121_2011

What’s NB in 18+19 Wat is NB in 18+19

Equilibrium◦ A = Y◦ intercept with 45° line

Graph◦ A on Y-axis

Total expenditure Aggregate demand

◦ Y on X-axis Total Production Total Income

Ewewig◦ A = Y◦ snypunt met 45° lyn

Grafiek◦ A op Y-as

Totale besteding Totale vraag

◦ Y op X-as Totale produksie Totale Inkome

3 belangrike kenmerke:Y CY > CC > 0, al is Y=0

Geïnduseerde komponentOutonome komponent

Fig.18-1, 18-2cYCC

3 NB Characteristics: Y C Y > C C > 0, even if Y=0

Induced component Autonomous component

Y = C + I S = I

S = -C + Y(1-c)

AYe ,, IC

mtc

)1(1

1

cYCC


Equations◦ Independent factors

stable, ‘hat’, capitals affect Y-axis intercept

◦ Dependent factors ‘small’, lower case c, t, m … s affect slope of A-curve

Multiplier◦ full multiplier ONLY◦ dependent (small)

factors

Vergelykings◦ Onafhanklike faktore

Stabiel, ‘hoed’, hoofletters

impak op Y-as afsnit

◦ Afhanklike faktore ‘klein’, kleinletters c, t, m ... s impak op helling van A-

kurwe

Vermenigvuldiger◦ volle vermenigvuldiger!!!◦ afhanklike (klein) faktore

ZXGIC ,,,,ZXGIC ,,,,


NB. Equations◦ C = …

tax (t) impacts on C marginal propensity to

consume (c) marginal propensity to

save (s)

◦ Z = … marginal propensity to

import (m)

NB. Vergelykings◦ C = ...

belasting (t) beïnvloed C

grens geneigdheid om in te verbruik (c)

grens geneigdheid om in te spaar (s)

◦ Z = ... grens geneigdheid om

in te voer (m)


Memorise the full α Replace with zeros where

data is missing

Leer die volle α Vervang nulle in waar data

kort

cccmortNo

mcmcctNo

tcctccmNo

mtc

1

1

00.1

1...

1

1

0.1

1...

.1

1

0.1

1...

)1(1

1

Hoofstuk 19 Modelle wat die owerheid en buiteland insluit 46

)(1

1

)(

ZXGICmctc

AY


ECON121_2011

A = C+I+G+X-Z


ECON121_2011

Autonomous Factors Outonome Faktore

Independent of Y No effect on α Y-axis intercept ...

Onafhanklik van Y Geen invloed op α Y-as afsnit ...

ZXGICA

II GG XX

Mohr & Fourie: Chapter / Hoofstuk 18 +19ECON121_2011

cY, tY, mY Dependent on Y Changes α Changes slope Equilibrium?

cY, tY, mY Afhanklik van Y Beinvloed α Verander helling Ewewig?

Induced Factors Geinduseerde Faktore

mtc

)1(1

1

cY◦ c ... α ... Ye◦ injection

tY◦ t ... α ... Ye◦ leakage

mY◦ m ... α ... Ye◦ leakage

cY◦ c ... α ... Ye◦ inspuiting

tY◦ t ... α ... Ye◦ lekkasie

mY◦ m ... α ... Ye◦ lekkasie


mtc

)1(1

1

c ... (t... m) inspuiting / injection

c ... (t ... m) leakage / lekkasie


mtc

)1(1

1

A=YA2

A1

A

YY1 Y2

A=YA1

A2

A

YY2 Y1


ECON121_2011

Exercise Oefen

C = 10 + 0.6Y I = 30 Calculate α and Ye Illustrate Calculate the new Ye if G =

20

C = 10 + 0.6Y I = 30 Bereken α en Ye Teken Bereken die nuwe Ye as G

=20


ECON121_2011

YtcCC

tYYcCC

YcCC

YtY

tYYTYY

tYT

d

d

d

)1(

)(

)(

)1(

T = tY T = tY

Finances G Leakage ...

◦ Reduces disposable income (Yd)

Yd ... direct C ... indirect

Finansier G Lekkasie ...

◦ Verminder besteebare inkome (Yd)

Yd ... Direk C ... Indirek


ECON121_2011

Fiscal Policy Fiskale Beleid

Expansionary FP ... A G t

Contractionary FP ... A G t

Uitbreidende FP ... A G t

Inkrimpende FP ... A G t

Hoofstuk 16 / Chapter 16

Exercise Oefening

Q. Ye = ? Long method & via multiplier

Q. Ye = ? Lang metode asook met vermenigvuldiger

C = 10 + 0.6Y

I=30

G=20

T=0.167Y

Mohr & Fourie: Chapter / Hoofstuk 18 +19ECON121_2011

Hoofstuk 19 Modelle wat die owerheid en buiteland insluit 64

◦ Buitelande se besteding◦ onafhanklik van Y◦ geen invloed op ◦ beinvloed A positief◦ skuif A-afsnit op

◦ binnelandse besteding◦ hang deels van Y af◦ ook outonome deel◦ lekkasie, skuif afsnit af◦ beinvloed Ā & α

(X-Z) = netto uitvoere

mYZZInvoere :

XXUitvoer :

Hoofstuk 19 Modelle wat die owerheid en buiteland insluit66

Impak op …Ā=Ċ+Ī+Ġ+Ẋ-Ż

(Outonome Besteding)

α=1÷(1-c+ct+m)

(Vermenigvuldiger)

Ye = α(Ā)

(Ewewigs Inkome)

Ċ

c

Ī

Ġ

t

Ẋ

Ż

m

Home work / Huiswerk Handing it in / Handig dit in

HW HW

Veronderstel die volgende inligting beskryf die ekonomie van Efenland

Suppose that the following information describes the economy of Eufenland:

C = 100 + 0.75Yd

I = 200G = 150X = 200

M = 150 + 0.4Yt = 20%

HW HW

1. Bereken die vlak van ewewigsinkome (Ye) in Eufenland met behulp van die totale bestedings-benadering./ Calculate Eufenland’s equilibrium income level (Ye) by means of the total expenditure approach.

2. Veronderstel dat investering (I) toeneem na 250, bereken die nuwe vlak van ewewigs-inkome (Ye) met behulp van die vermenigvuldiger. / Suppose that investmet increase to 250, calculate the new level of equilibrium income (Ye) by means of the multiplier.

macroeconomics

Education

y c y c c

y c spare y

y c cycc

c impact

herskryf c

autonome c

rewrite c

supply y