Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Qazi Subhan
M. Phil (Eco), Pak
LLM (IPR), Italy
Weeks 15
Monetary and Fiscal Policy
and structure of economy
Weeks 14
Demand Management Policies
Week 16
Inflation and Unemployment
and their measurement
Weeks 13
Concept of Multiplier
Week 17
Project Presentations
Weeks 12
Consumption and Saving
Functions
Macro
Economics
Week18
Weeks 11
National Income
Determination
Qazi Subhan
Final Exam
Weeks 10
Introduction to Macro
economics
Bahria University
Fall 2014
1.
2.
3.
4.
5.
6.
Introduction to Macroeconomics
National Income Determination
Derivation of Aggregate Demand,
Aggregate Supply and General Equilibrium
Demand Management Policies
Inflation and Unemployment
Measurement of Inflation with price Indices.
Definition of Economics
Classification of Economics
What is Macroeconomics
OR
Employment Opportunities
Economic Indicators
Social Indicators
GDP
Health
Growth
GNP Growth
Employment
Inflation
Exports
Imports
BOP
BOT
Trade Deficits
situation
Literacy Rate
Transportation
Communication
Soft Drinking Water
Poverty
Sanitation
Infrastructure
Definition
Types
of National Income
of GNP
Measurement
of GNP
Expenditure Approach
Two Sector Model
Three Sector Model
Four Sector Model
Income Approach
Potential GNP
Actual GNP
EXPENDITURE APPROACH
The national income can be measured through
the aggregation of all the expenditures of the
economy like the expenditures for the
development of the country.
This approach can be interpreted through the
following models
TWO SECTOR MODEL
Y= C + I
THREE SECTOR MODEL
Y=C+I+G
FOUR SECTOR MODEL
Y = C + I + G + (X-M)
INCOME APPROACH
TWO SECTOR MODEL
Y= C + S
THREE SECTOR MODEL
Y=C+S+T
FOUR SECTOR MODEL
Y = C + S + T + Rf
C+S+T+ Rf
C+I+G+(X-M)
E2
E1
E0
C+I+G
C+I
Income
Resources
Business
Firms
Households
Goods
Expenditures
Everyones
expenditure is
someone elses
receipt. Every
transaction
must have two
sides.
Significance of Multiplier
In
Additional income
Additional consumption
Marginal propensity
to consume
(dollars)
(dollars)
Round 1
Round 2
Round 3
Round 4
Round 5
All others
1,000,000
750,000
562,500
421,875
316,406
949,219
750,000
562,500
3/4
3/4
421,875
316,406
237,305
711,914
3/4
3/4
3/4
3/4
Total
4,000,000
3,000,000
3/4
For simplicity (here) it is assumed that all additions to income are either spent domestically or saved.
Size of
multiplier
9/10
4/5
3/4
2/3
1/2
1/3
10.0
5.0
4.0
3.0
2.0
1.5
1 MPC
Consumption Multiplier
Investment Multiplier
Government Multiplier
Tax Multiplier
Lump sum Tax Multiplier
Income Tax Multiplier
(Expenditure Multipliers)
Consumption Multiplier
Investment Multiplier
Government Multiplier
K = 1/1- MPC
Tax Multiplier
Lump sum tax Multiplier: -MPC/1-MPC
Income tax Multiplier (K)=
-MPC/1-MPC+MPC * Tax Rate
Y C I G
where
C C0 c1Y
I I 0 , G G0
Then
1.
Y C I G
where
C C0 c1 Y T
T T0 , I I 0 , G G0
Then
1. find equilibrium output (Y*), consumption level and savings of
a country.
2. Find Investment multiplier, consumption multiplier and Tax
Multiplier
Y C I G
where
C C0 c1 Y T
T T0 tY , I I 0 , G G0
Then
1.
2.
Suppose
Practice Question
C 200 0.67(Y T )
T 130 0.3Y
I 150
G 340
( X M ) 100
Then
1.
Find equilibrium output, level of consumption
and saving from the above information
2.
3.
Y C I G
where
C 100 0.65Y T
T 240 0.15Y , I 1000, G 500
Then
1.
2.
Product Market
Money Market
Labor Market
Product Market
Money Market
Both Curves are showing relationships between rate of interest and national income
IS Curve
LM Curve
Consumption
Government Expenditure
Exports
Imports
Taxes
An increase in
P
the price level
causes a fall in
real money
balances (M/P ),
causing a
decrease in the
demand for
goods &
services.
AD
Consumption
Government Expenditure
Exports
Imports
Taxes
Money Supply
An increase in
the money
supply shifts the
AD curve to the
right.
AD2
AD1
Labor Supply
Labor Demand
Labor demand has negative relation with wage
because as wage increases, cost of production
would increase. As cost of production
increases, it implies that the firm would
reduce the demand for labor. Briefly, there is
reciprocal relation between wage and labor
demand
Labor Supply
Labor Demand
Production Techniques
Labor Intensive technology
Capital Intensive Technology
Neutral Technology
Fiscal Policy
Monetary Policy
Definition
Objectives
Economic Growth
Price stability
Employment Opportunities
Government Expenditure
Taxes
Direct Tax
Indirect Tax
Business Cycles
To Product Market
To Money Market
To Labor Market
Definition
Definition
Monetary Policy is designed by State Bank to
stabilize the economy with the monetary
tools
Objectives
Bank Rate
Money Market
Product Market
Labor Market
Business Cycle