Chapter3 - 1 Chapter Three CHAPTER 3 National Income: Where...

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Unformatted text preview: 1 Chapter Three CHAPTER 3 National Income: Where It Comes From and Where It Goes A PowerPoint Tutorial To Accompany MACROECONOMICS, 7th. Edition N. Gregory Mankiw Tutorial written by: Mannig J. Simidian B.A. in Economics with Distinction, Duke University M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management 2 Chapter Three Copyright 1997 Dead Economists Society It is a quite simple but powerful analytical model built around buyers and sellers pursuing their own self-interest (within rules set by government). Its emphasis is on the consequences of competition and flexible wages/prices for total employment and real output. Its roots go back to 1776to Adam Smiths Wealth of Nations . The Wealth of Nations suggested that the economy was controlled by the invisible hand whereby the market system, instead of government would be the best mechanism for a healthy economy. 3 Chapter Three The heart of the market system lies in the market clearing process and the consequences of individuals pursuing self-interest. In this module, we will develop a basic classical model to explain various economic interactions. 4 Chapter Three neoclassical theory of distribution We are going to examine carefully the modern theory of how national income is distributed among the factors of production. It is based on the classical (eighteenth-century) idea that prices adjust to balance supply and demand, applied here to the markets for the factors of production, together with the more recent (nineteenth-century) idea that the demand for each factor of production depends on the marginal productivity of that factor. Proceed to the next slide to the CLASSICAL FACTORY to learn how to construct the classical model....
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Chapter3 - 1 Chapter Three CHAPTER 3 National Income: Where...

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