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macroeconomics
This is a mind map about macroeconomics, including the core indicators of national income - GDP related, the determination model of national income, and the short-term development of national income. Problems caused by fluctuations, etc.
Edited at 2024-01-29 02:14:43
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macroeconomics
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- Outline
macroeconomics
The core indicator of national income-GDP related
Measurement of GDP
Consumption Investment Government purchases Net exports·
household sector
Contribution to GDP – Consumption
corporate sector
Contribution to GDP - Investment
Total investment = Net investment Depreciation
fixed investment
Purchase of new plants, machinery, equipment and residences
Inventory investment
Inventory value
Inventory investment for the current year = inventory value at the end of the year - inventory value at the end of the previous year
government departments
government purchase
Transfer Payment
Transfer payments are a redistribution of income and are not used for direct exchange of products and services and are not included in GDP.
international department
Export value - Import value
Nominal GDP vs. Real GDP
Real GGDP=nominal GDP÷price level
Other indicators related to GDP
GNP Gross National Product
It must be calculated regardless of whether the factors of production are located domestically.
NI national income
GNP-Depreciation
NDP net national product
NI=NNP-Indirect taxes-Enterprise transfer payments Government subsidies to enterprises
PI personal income
Personal disposable income Personal income tax
Determination model of national income
income-expense model
equilibrium output
Income = output = consumption investment y = c i
Keynes's consumption theory
consumption function
c=α βy
If the marginal propensity to consume increases, the cross-intercept of the IS curve increases
Consumption = spontaneous consumption (constant) Marginal propensity to consume·y
Marginal propensity to consume MPC=dc/dy
Average propensity to consume APC=c/y
The relationship between consumption and income in the short term
1.c=y All income is used for consumption APC=1
2.c>y negative savings APC>1
3.c<y positive savings APC<1
4. dc<dy Increase in consumption<Increase in income 0<MPC<1
Keynes's diminishing marginal propensity to consume considered to be one of the root causes of the economic crisis. As income increases, consumption accounts for ratio decreases, so economic expansion will bring about Consumption demand is insufficient, resulting in production economic crisis of overproduction
savings function
s=y-c=-α (1-β)y
Marginal propensity to save MPS=ds/dy
Average propensity to save APS=s/y
The relationship between savings and income in the short run
1.s=y is all used for savings APS=0
2. s<y negative savings APS<0
3. s>y positive savings APS>0
4. ds<dy Increase in savings<Increase in income 0<MPS<1
The relationship between consumption function and savings function
y=cs
APC APS=1
dy=dc ds
MPC MPS=1
In the simple Keynesian model, an increase in investment will increase savings
Other factors affecting consumption
interest rate
price level
Income Distribution
Social security system
Family-enterprise economic relationship
equilibrium income
y=α i/1-β
Savings and Investment Identity I=S
planned investment = planned savings
multiplication theory
k=1/1-MPC=1/MPS=1/1-β
Because the greater the marginal propensity to consume, the increased income will be More is used for consumption, thereby increasing aggregate demand and national People’s income increased even more
“Taxing high-income earners and subsidizing low-income earners can increase national income
investment needs
Investment and Interest Rates
Interest rates are determined by the supply and demand for money
Keynes's theory of investment demand
The level of corporate investment depends on the marginal efficiency of capital compared with the market interest rate When the marginal efficiency of capital is constant, r decreases and i increases.
As investment increases, the marginal efficiency of capital decreases
Due to the liquidity preference of money, there is a limit to the decline in interest rates
Due to the diminishing marginal efficiency of capital and the decline in interest rates, investment demand is insufficient.
Tobin's q theory
q=stock market price of the enterprise/cost of building a new enterprise (replacement cost)
q<1 It is more cost-effective to buy an old business than to build a new one
q>1 It is more cost-effective to build a new business than to buy an old one. Promote new investment
Conditions suitable for investment: market interest rate capital ≥ marginal interest rate of capital
That is, the existing investment scale is small
The economic relationship among the three sectors: family, business and government.
Savings and Investment Identity I=S (T-G)
Investment = Private Savings Taxes - Transfers
Assuming other things being equal, changes in savings or government taxes will cause National income moves in the opposite direction. An increase in savings or government taxes would increase have to reduce consumption
Various multipliers in the three sectors
government purchase multiplier
k=dy/dg=1/1-β
Changes in income/changes in government purchases
tax multiplier
k=dy/dt=-β/1-β
government transfer multiplier
dy/dt=β/1-β
Family-business-government-international four-sector economic relationship
I=S (T-G) (M-X K)
Investment = private savings, government savings, foreign savings to the country
IS-LM model
Product market equilibrium: IS curve
Investment i = savings s
Equilibrium in Money Markets: The LM Curve
Keynesian view on interest rate determination
The demand and supply of money determine interest rates
Determination of money demand
income money demand
Transaction Motivation Monetary Demand
Precautionary Motive Monetary Demand
speculative money demand
Speculative Motives for Money Demand
"Liquidity Preference"
liquidity preference trap
The slope of the LM curve
Horizontal "Keynesian zones" represent "liquidity traps"
At this time, interest rates are extremely low and investment demand is extremely high, h→∞
Output increases, interest rates rise slightly
The vertical "classical zone" represents a situation where there is no need for monetary investment at all
Currency is extremely sensitive to interest rates
When government spending increases, it only raises interest rates and completely squeezes the private sector investment without increasing national income (full employment)
The "middle zone" of positive slopes represents normal conditions for the economy
Changes in the LM curve
The nominal money supply M increases → the curve moves downward to the right (meaning output remains unchanged and the interest rate decreases)
The price level P rises → the actual money supply m decreases → the curve moves to the upper left
Common equilibrium of two markets IS-LM model
The intersection of the curves determines national income and the interest rate
AD-AS model
The total demand for products and services in society═expressed by output level
changes in the aggregate demand curve
price change effects
Money supply remains unchanged, prices rise, aggregate demand and income levels fall
changes in government policy
Expansionary fiscal policy increases government purchases and reduces taxes → increases the equilibrium income level → shifts the AD curve to the right
Expansionary monetary policy: the central bank lowers interest rates and increases money supply → lower borrowing costs for businesses and households → stimulate consumption and investment → the AD curve shifts to the right
Changes in foreign trade variables
The country's GDP increases faster than other countries, the country's imports increase>exports increase, and net exports decrease
The exchange rate of the domestic currency against the currencies of other countries increases, the domestic currency depreciates, exports increase, imports decrease, and net exports increase
changes in the aggregate supply curve
Influencing factors
Production function (technical level, labor productivity)
The force that determines price is demand
An increase in nominal wages shifts the aggregate supply curve to the upper left (holding labor productivity constant, Higher nominal wages cause profits to fall, forcing companies to reduce output)
Labor employment volume (labor demand, labor supply)
Technological progress shifts the aggregate supply curve downward and to the right (technological progress reduces the cost of enterprises, The company is willing to increase production)
Full employment
eliminates periodicity unemployed employment status
Causes of cyclical unemployment: insufficient aggregate demand
Labor market equilibrium, real wages adjust to a level where labor supply and demand are equal
The capital stock k is determined by past investment decisions, that is, the labor market is The total supply aspect of the economy dominates and determines the total supply or total output of the economy.
f(L,k)
L represents the employment level; K the capital stock of the entire society (capital stock and technological level will not change much in the short term)
The economic implications of different characteristics of the aggregate supply curve
classical aggregate supply curve
Prices and money are elastic in the long run → full employment (potential output level, prices variable)
Keynesian aggregate supply curve with constant price
As output increases, neither money nor wages change.
Keynesian supply curve with variable prices
Money wages increase as output increases
Classification criteria: currency level and price level The length of time it takes to make adjustments
The price effect of expanding aggregate demand policy is the largest, indicating that the aggregate supply curve is a long-term aggregate supply curve
Aggregate demand-aggregate supply model
Macroeconomic short-term goals: full employment and price stability
national income in the short run Problems caused by fluctuations
Macroeconomic explanation of unemployment
Classical Economics - Say's Law
Keynesian
diminishing marginal consumption
Diminishing marginal efficiency of capital
liquidity preference
New Keynesianism
There is wage stickiness
Labor wage contract theory
"Insider-outsider" theory
Reasons for unemployment
frictional unemployment
Derived from normal labor market changes
Includes voluntary unemployment and seasonal unemployment
short term unemployment
structural unemployment
Permanent technological upgrading or a decline in a country's competitiveness (a reduction in employment opportunities in its industry or region)
long term unemployment
Wage rigidity is a source of structural undertakings
Effects of Unemployment and Okun's Law
Unemployment affects social stability, increases economic operating costs, and aggravates the social and economic downturn.
Okun's law: If the unemployment rate is higher than the natural rate of unemployment 1 percentage point, actual output will be 3% lower than potential output
When GDP does not reach full employment
The growth rate of real GDP = potential GDP’ otherwise the unemployment rate will rise
It is hoped that the unemployment rate will decrease → the growth rate of actual GDP in society > the growth rate of potential GDP
Types of inflation
Price index measured by: Consumer Price Index
Mild inflation with price increases within 10%
Rapid inflation, price increases range from 10% to 100%
Ultra-rapid inflation, price increase ratio >100%
According to the degree of inflation
demand-pull inflation
Total social demand>Total social supply
Example: Increase in government spending
cost push inflation
Rising costs of raw materials, wages, etc.
The root cause is monopoly
structural inflation
Excessive demand in certain sectors of the economy causes price increases, leading to overall price increases
According to the causes of inflation
impact of inflation
social cost
menu cost
sole cost
tax distortions
Economic impact
It is beneficial to profit earners and floating income earners, but not beneficial to working class people who rely on fixed income to maintain their lives.
Benefit the creditor and disadvantage the debtor
Good for holders of physical wealth, bad for holders of monetary wealth
It is beneficial to the government, which is equivalent to the government imposing an inflation tax, and is not beneficial to ordinary people.
Phillips Curve
The original Phillips curve “unemployment-wage” relationship
Modified Phillips Curve “Unemployment-Price” Relationship
The extended Phillips curve “output-price” relationship (proposed by the monetarist school)
Expected Phillips curve (proposed by the rational expectations school)
Ways to lower inflation: Increase unemployment
deflation
The currency in circulation is less than the need for currency circulation, and the velocity of currency circulation decreases.
Consumers expect prices to fall → postpone consumption; Actual costs rise during the investment period and prices fall during the payback period → curb investment; Businesses are under-operating and the unemployment rate is increasing; Demand is sluggish, import and export volumes have dropped sharply
stagnant expansion
The government’s response to short-term economic fluctuations Economic policies that caused the problem
Fiscal policy (government changes in taxes and spending)
Expansion'
Tax cuts → Increase in disposable income of individuals and businesses → Stimulate consumption and investment → Increase production and employment
Expand government purchases and expand public facilities → expand private enterprise product sales → increase consumption
The price level rises→the money supply decreases→the interest rate increases
Government spending = Government purchases Transfer payments
Government revenue = taxes Public debt (government borrows money from the public)
automatic stabilizer
Automatic changes in taxes, automatic changes in transfer payments, Farm product price maintenance system (minimum price is higher than the equilibrium price)
Consider fiscal policies
Compensatory fiscal policy = alternating between expansionary and contractionary policies
There is a time lag, and the size of the multiplier is difficult to determine
Functional fiscal and budget surplus
budget deficit and budget surplus
Use budget deficits and budget surpluses according to countercyclical needs
deficits and public debt
ways to make up for the deficit
borrowing debt
Borrow from the central bank (the central bank issues more money → inflation) ═ Solve the deficit by levying an inflation tax
Borrowing from the domestic public and foreign countries → rising interest rates → buying bonds through open market operations → increasing the money supply
sale of government assets
Reasons for high U.S. deficit ratio
Tax hikes offend wealthy voters
Reducing expenditures mainly reduces medical insurance and social security, which offends the poor.
Public debt/government needs to repay principal and interest
As long as the non-interest deficit is 0, and as long as interest payments increase, the total deficit will also increase
Western financial hierarchical management model
Central tax, local tax, central and local shared tax
IS-LM model analysis
The flatter the IS curve, the more obvious the crowding-out effect caused by rising interest rates.
The steeper the LM slope → the less responsive money demand is to interest rates → an increase in government spending → Rising interest rates → squeeze out more private companies
Factors affecting the extrusion effect P505
The greater the marginal propensity to consume, the smaller the marginal tax rate, and the greater the investment multiplier. Therefore, when fiscal expansion raises interest rates and crowds out private sector investment, the greater the reduction in national income, that is, the greater the crowding-out effect, and therefore the smaller the effect of fiscal policy.
Monetary policy (central bank changes money supply)
Expansion'
Increase money supply → lower interest rates → stimulate private investment
Increase money supply → support enterprises to expand investment → stimulate consumption → increase production and employment
Increase the statutory reserve ratio and lower the discount rate
Money creation index = 1/β═The reciprocal of the statutory reserve ratio β
The higher the statutory reserve ratio, the more difficult it is for commercial bank deposits to create balances
Money creation index is proportional to initial deposits
Money that can be created = money creation index × initial deposit amount
Actual reserve rate = statutory reserve rate Excess reserve rate =Reserves÷Initial deposit amount
The higher the market loan rate, the more bank balances are unwilling to keep excess reserves.
Interest rates rise, the excess reserve ratio falls, and the money multiplier increases
The rediscount rate rises → the cost of borrowing money from the central bank for commercial banks rises → commercial banks keep more reserves, but the overall reserves decrease → the money supply decreases
Bond prices move in opposite directions to market interest rates
The central bank purchases bonds from the public and bond prices increase
tools of monetary policy
1. Rediscount rate policy (interest rate for commercial banks to borrow money from the central bank)
2. Open market business (buying and selling government bonds)
3. Change the statutory reserve ratio (increase the money supply → reduce the statutory reserve ratio)
There is a time lag, once the effect is strong
Taylor's rule
The inflation rate is high, and the bank’s interest rate on account deposits is high.
IS-LM graph analysis
If the IS is flat, the policy effect will be better
If LM is flat, the policy effect is better
limitation
The economy is prosperous in order to curb inflation, and the effect of monetary tightening is more obvious.
The expansion effect is not significant during depression
Manufacturers are relatively pessimistic about the economy and are unwilling to increase loan investment even if interest rates are lowered.
liquidity preference trap
To increase or decrease the money supply, the velocity of money circulation must remain unchanged.
When prices rise rapidly, people are more willing to spend their money
There is a time lag, once the effect is strong
Affected by international currency circulation, the local currency appreciates → the central bank buys foreign currency and sells the local currency → increases the supply of local currency
Within the Keynesian zone, fiscal policy is effective; In the classical region, monetary policy is effective
Volcker tightens currency to control inflation
Extraordinary monetary tightening
The purpose of Keynesian monetary policy: to achieve full employment Monetarist monetary policy: achieving price stability
A mixture of the two policies
severe depression
Expand fiscal and monetary expansion
Increase demand while lowering interest rates to overcome the “crowding-out effect”
As long as IS and LM move to the right in the same direction and with the same amplitude, income can increase while interest rates remain unchanged.
mild depression
Expand fiscal policy and tighten monetary policy
Stimulate aggregate demand while lowering interest rates to curb inflation
severe inflation
tight fiscal tight monetary tightness
Raise interest rates, reduce aggregate demand, tighten finances, and prevent excessive increases in interest rates
mild inflation
Tight finance, loose money
Compress aggregate demand and lower interest rates to avoid over-tightening and recession
When the economy is good
Tight finance, loose money
Promote the rational allocation of economic resources
income, price controls
Inflation policies that suppress income
The micro premises that constitute the macro, and the derived research
The behavior of consumption and saving and its inner meaning
Analysis of investment behavior and its decision-making and subjective effects
How can our country learn from Western economics?
Long-term growth theory of national income
international market
output at full employment