{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

lecture2 - Lecture 2 National Income where it comes from...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 3 CHAPTER 3 National Income National Income slide 1 Lecture 2 National Income – where it comes from and where it goes
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 CHAPTER 3 National Income National Income slide 2 In this chapter you will learn: In this chapter you will learn: 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
Image of page 2
CHAPTER 3 CHAPTER 3 National Income National Income slide 3 Adding the Government Sector Adding the Government Sector Goods Market Factor Market Financial Market Consumption Investment Output Income Saving Borrowing Households Firms Governments (Federal, State, Local) Taxes Transfers Bud Deficit Govt.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 CHAPTER 3 National Income National Income slide 4 Outline of model Outline of model A closed economy, market-clearing model Supply side factor markets (supply, demand, price) determination of output/income Demand side determinants of  C I , and  G Equilibrium goods market loanable funds market
Image of page 4
CHAPTER 3 CHAPTER 3 National Income National Income slide 5 Factors of production Factors of production K   =  capital,  tools, machines, and structures  used in production L   =  labor,  the physical and mental efforts of  workers
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 CHAPTER 3 National Income National Income slide 6 The production function The production function denoted   Y  =  ( K ,   L ) shows how much output ( Y  ) the  economy can produce from K     units of capital and  L     units of labor.  reflects the economy’s level of  technology.   exhibits  constant returns to scale .
Image of page 6
CHAPTER 3 CHAPTER 3 National Income National Income slide 7 Returns to scale: a review Returns to scale: a review Initially    Y 1     ( K 1   ,   L 1   )   Scale all inputs by the same factor  z :    K 2   zK 1     and   L 2   zL 1   (If  z  = 1.25, then all inputs are increased by 25%) What happens to output,  Y 2  =  ( K 2   ,   L 2   ) ?   If  constant returns to scale Y 2  =  zY 1   If  increasing returns to scale Y 2  >  zY 1   If  decreasing returns to scale Y 2  <  zY 1  
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 CHAPTER 3 National Income National Income slide 8 Exercise: Exercise: determine returns to scale determine returns to scale Determine whether each of the following  production functions has constant,  increasing, or decreasing returns to scale: a)    2 15 F K L K L = + ( , ) b)    F K L KL = ( , ) c)    2 15 F K L K L = + ( , )
Image of page 8
CHAPTER 3 CHAPTER 3 National Income National Income slide 9 Assumptions of the model Assumptions of the model 1.
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern