23.
#
Why
economics
is
Because
->
help
devise
us
Macro-Makes
1) Algebra
-
2) Graphs
->
words
->
3)
* Capitalism
->
to
to
to
and
Tenets
of
Private
make
Economic
DY
2)
K
3)
L
t>
t
->
results
the
based
system
control
of the
operation
capitalism
property
freedom
·
that the
the intrition
·
self-interest
·
3 tools
sure
explain
their
·
to choose
·
capital
is
our
correct
theor
private ownership
of production
means
for profit.
competition
Government
Output production
Physical capital
on
of
logic
Market mechanism
Placeholders
Human
how the world
about
appropriate policies
of
use
build
theories
economic
and
·
science?
develop
we
works.
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a
(intervention, limited)
rules:
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5)
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n
n
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⑧
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y 1
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y 2k
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6
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I
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hold the other
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so
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variables
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sum
function
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/23.
Mastering
1)
which
2)
·
·
For
variables
each
in
Models
curve
contr
out-of-control
↳
are
endogenous
in
the
definition
and
diagram,
which are
↑
exogenous
know:
intrition
⑥
3)
Use
Total
model
output
analyze
to
Total
=
Total
income:
expenditure
National
BLS
-
BEA
Income
Bureau
Bureau
-
identity
of
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of
Gonomic
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NiPA-
supply
y
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C
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y
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c
->
I
+
G
+
NX
+
-> demand
Production
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->
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Nx->
Net
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of
·
=
purchases
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funds
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in the
investment
·
NX 0
market
market is
The
economy
Investment
I ->
a
↳
consumption
of
new
Includes
above
equation
that the
represents
goods
stocks
&
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non-residential
plants
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new
investment,
the
machinery,
and
purchase by
firms
residential investment
en
nowsing
Supply of goods &
of
factors
K
->
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capital
↳ reflects
K
how
of
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the
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of
F(K, 2)
=
of
and
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technology
level
of
list
-
is
->
Yz
constant
cretion
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Decreasing
return
to
impot
F
scale-outputchanges proportionally
all
of
double/triple/etc.
you
double/triple late,
also
=>
the
convert
its
with
When
=>
from
Characteristics
retrans
constant
labor
blueprints
that are used to
output]
function
produce
can
of technology
to
production
workers)
efforts of
outputthe economy
I
units
much
capital
units
stactures)
machines,
& mental
Function:Y
Production
shows
Y
production
Lt
Labor
↳
services:
z
=
to
all
all
Y,
scale
->
Y2
ta> 24,
to
scale
t
setron to
scale
t
2
:
Y,
ya C24,
inputs
input, you
output
Returns
I
to scale
Example
-
F(k, 2):
Does this
Step
If
1:
Step
2:
satisfy
I
double
double
Step 3:double
2*
Thus,
CRS?
of
K and
the
the
2
=
I, world
ydouble?
[24]
Y
[.2:[T]
aput
Y,
therefore,
papers =
it is
CRS
e
a
CRS
Thus,
3)
Dabl2
input
FCK,2)
2x
k
=
2(k 1)
22
+
Thus,
L
+
=
+
2Y
=
CRS
F(1,2) k"3
12k)"3. (2243:2"K".C*" "**","
4)
=
=
2(k"-43)
=
Thus,
CRS
2Y
=
Assumptions
D)
Technology
fixed
is
2) Geonomy's supplies of capital
K
Determining
Output
fixed
is
K
=
the
of technology
state
Y
by
-
fixed factor
4
To
be
fixed
at:
supplies
and
the
F(, i)
How is total income, the value
production,
are
I
1:
and
determined
and labor
distributed
the
in
confined...
of total outputof
economy?
total
23
How is total income, the value
production,
value
·
firms
unit
S
S
->
Real
Real
How
wage
rental
are
optimal
We
P
determined
is
factor
prices, the prices per
factors of production
price of L
wate=
poice of
determined
decision
->
in
a
nominal
wage
price of output
competitive market?
=
cost
Marginal
R nominal rental rate
Junits
WIP real
=
wagerental of
=
RIP:real
level
price
K
MB MC
marginal benefit
=
Labor
economy
total
Y
income
by
the
outputof
-
they
-price
~
for
pay
:consumer
W
the
in
of output:Total
Distribution
·
distributed
total
of
output)
rate
index
Market
supply
R
P
MPL
because
constant
fixed
Marginal product
-
how
assumption.
much
labor
MPL
is
output
each
of
labor
of
additional
producing?
L
to
inversely aprop
constant
assuming
S
-
L
↳
I
MPL
The real
to
demanded with
equilibrium
wage
jeal
-.........
I
-----
i
~age
MPL,
City of
of
units
L demanded
labor
labor
demand
L
I
marketare
fire
MB
↳
w
betefitfrom hising
MPL
MRS
marginal
I
additional
=
MPL
=
crate
of
substitution
supply
marginal product
Diminishing
%.
Real
adjust
wage
labor
equate
laboy
supply of
units
art
capital
equilibrium
wage
%.............
real
eye
Diminishing marginal
i
product
mold, demand
capital
K
fro
K
of capital
units
function
-an
1)
CRS
2)Diminishing marginal
How
)
determine
The
3)
The
MPL is
MOL
2
Suppose,
desiritative
L=
LT
L
OF
wart. K
xk.I t
-
Ik()"
K*
1
=
4
+
MPLA
=
=
4tk*(
a
=
of
PF
wrt. L
is
-1
is .
of
i
2): V
L
As
the
retren?
blw MPL&L
relitistionship
MPK is the desiradive
SFSK,
:
diminishing marginal
to
know the
Need to
2)
product
=
(determined
"2
x
1
inceasing
by denominator)
The
·
Total
How
total
CRS
-
capital
T
distributed to
I
income
MPLX
economic
I
+
labow
I
total
-
capital
income
K
profit
of total
Thus,
C>If
income
MPK
x
of total
put
or
RT,
a constant
x5
=
arput
share
Mox
2
K
T:
=
capital
Land
I
MoRx
income:
total
income:
labor share
distribution
distributed
income
labor
X total
No
home is
is
total
If
theory of
neoclassical
5 I
t5
MPK
constant
because
-Duglas
Bu
PF
●The Cobb-Douglas production function has
constant factor shares:
= capital’s share of total income:
capital income = MPK × K =
Y
labor income = MPL × L = (1 –
)Y
●The Cobb-Douglas production function is:
2
Q
2
where A represents the level of technology.
If
of
es
If
z
the
the
doubles,
capital
capital
stays
holders
same
t
so,
thus the
stays
>MPK
share
the
of
same
the
t
xK
Y
share
and
capital holders
a)
why
↳
a) why
a)
How
.
do
is
we
it
care
if
the
labor shares
declining?
do we
stop it?
unfair toworefor
the
go the
decrease?
23.
labor share
proportion
to
goes
total
of
workers
y
that
=
=
Since
the
Why
is
X
1950,
declining
is
declining?
to
technology
being
workers
-
machines
I
the
in
goods &
assuring
workers
services.
that
are
↓
-
replaced by
production of
machines and
perfectsubstitution
Type of jobs
high
low
skill
-
non-routine
routine
-
-
or
high
low
skill
②
income
9/3
k *,
X
O
->
skill
or
skill
offshoring outsourcing/globalisation
Determined
by
capital
outputproduced
③
Unions
⑦
Market
power
abundance
-
apital
of
labor abundance
intensive
labor intensive
(markup)
-23
CONSUMPTION
-
->
consumption depends
Disposable
on
How much
consumption
↳
c
↳
How
is
c(y- i)
that
much
do
dispo sable
C
function
=
snows
↳
a
we
x
of
c(y
disposable
consume
income
of every $1 of
(MPC)
consume
out
to
x)
home?
4(y-T)=↑C
income?
-
take
you
behavioral equation
Marginal propensity
=
Income
MPX(y
-
=
-
T)
slope of consumption
((y
C
MPC
1
Bautonomous
income
Y
-
T
-
function
T)
Festment
money
spenton
to
equipment,
machinery,
residential
stactures
housing,
determinants
of investment
↳
interest rate,
income,
making
credit
power
score
I
is
·
negatively
related
to
interest
Yc
=
4
↳
rate.
I
+
4
+
capitalist, closed
economy
market
and
for goods
services
for
Market
goods
Aggregate
demand:
&
represents ginstant
((Y
-
T) I(r)
+
+
Aggregate supply:Y F(K,it
I
=
Equilibrium
E every
is either
invested,
:
produced
good
consumed,
or
government
8
⑧
How
~
is
is
a
a*p
c=
used
production
consumption
as
spending
adjusts
to
=
equate
demand with
supply
determined?
determined
in
the
market
funds
↓=
financial system
↓
%
I(r)
men
-
easing from
the
Fire
↑
firms
labor
the
for
t
C
This
the
to
=
savings of
is
hire
-
to
produce &
produce
services
entire
money
country
is
put
into
financial system
instit
S
goods -
The
financial system
helps
chanel
projects
the
investment
to
resources
to
the
with
retrans.
highest
Borrowers
0-> miral
Systems - &
savers
Francialmeets
institutions through
savers
eg:
funds
stock
bond
stock
->
bandt
Mutual
institutions
which
which
metly
can
provide
Intermediasies
mial
-
share
fonds
to
eg: banks,
market
can
indirectly provide
bossowers
to
market,
savers
through
boysowess.
mutual
funds
of company indebtedness
of
certificate
funds
eg: fidelity,
acoans
a
to
institutions that sell shares
the
to
the
buy
public
and
use
portfolios of
proceeds
stocks
and
to
bonds.
Financial
system
7 tr
National
C
of
market
-
aing Put saving
-
Def
-??
y
+
7-c -g
7
=>
c 3
=
-
-> (
x-
form
x
G
-
G
I
=
T
+
-
T I
T) (1
+
=
-
G)
I
=
definition,
Paivate
-
saving
Public
+
5 I
=
funds.
Public
saving
+
↓
Goods
->
+
loanable
saving
market
I
=
closed
In
investment
every
economy,
the residents
franced by
of
S
I
A
happens
↳
↳
intermediatee
⑧
.
to
a
into
put
putinto
a
put
account
savings account
retirement
mutual
into
funds,
T3G
Budget deficit
9
The
us
treasury
-
public
=(a
-
4)
saving
T
-negative public saving
Budget Gtpublic saving
the
gown, finances
deficit by
bonds
T
i.e.
Deficit
Public
trillion
-
=I
0.3
(T
sawing:Prb.saving
=1.5
issuing
G:$2tr.
<=$6.strillion
$300 billion
-
=
borrowing
-0.3tr.=
4)
saving
put
swing ts-1.7=1.8
a
0
=
-
Sun
$10
- a) GDP:
National
(IRA, 401k)
stocks, bands
(T
=
2
T <
Balanced
country.
consumed?
not
money
surplus
Budget
is
financial system
=
What
the
project
e
-
Put
saving
4
1
-
T
=
5-9
-0.3
=
-
0.3 2
+
=1.7
a
1.8-0.3
1.5
=
stocks,
mutual
funds,
etc
swews
Borrowers
-
·
·
Private
Public
(T
C
savings
savings
>
-
7
4
-
Financial
System
I
Determines the
minwest
Answer
rate
firms
buy
the
in
t
buy
equipment/struct.
·
home
(mortgage)
following
⑲s
real
interest
·
!
Tad
↳
->
Government
When
They
Goven.
Demand
manic
funds
opportunity
borrowing
rate
Interest
%
Supply
<-
~
more
deficit
Suns
borrow
for foreign
out
investment
deficit, (T-4(0)
from
everyone
-
by getbands
<1-bills)
When
↳
Goun.
auns
parfit
(T
-
430)
They buy back/retice/payback
the
Treasury
bills.
T-4 <0.
News
Market
Financial
3
bonds
mercial
corporate
bonds
->
->
->
T-
to
invest
thus
and
crowding SThus,
out
the
leaving
gort,
to
cush
firs
safer.
are
bonds
they
don'traise
equipment
in
they
see
enough money
and
structures
CROWDG Ors.
are
its
borrows
deficit,
finance
gout
less
investment.
available
to
funds
Interest
rates
the
~n.
buy
aStegerbas
gout.
Bills
firms
Thus
sef:
bands
Municipal
private
bands
bonds
also
because
godueup to
down
gowhich
Interestrate
Interest ratet
for
crowd
-
-
gout, issuing
out the
of
prices of
more
Borrowing
Price
the
investment
private
t
Bonds N
&)
How much
of,
the
stimulus
(CARES AC)
simulated the
economy
->
hoping for higher
consumption
a
higher
reality:
people
only spent
29%
35%
36%
/
ding
a
marginal
H
propensity
consume
for consumption,
for paying off debt,
savings
to
ively
correlated
al
to
fas
other
tows.
⑧
How
->
->
->
t
->
->
->
lif
ang,
nug.
human
inequality
can
E
auth
->
living?
Score
goods
rate
stability
infrastructure
over
Tributes
rate
birth/death
do
across
->
development index
public
political
of
(Per capita GDP)
to
education
way
->
span
income
access
t
-
standard
to
measure
app
changesand
countries
time?
->
education
colonizations
technological
-
access
->
trade
to
fiscal
->
advancement
investment
political
stability
-> institutions
->
->
policies
resources
type of economy
↳ No
5)
9
or
casmedic
t
differences
duction function
#
Economic
y
growth
sustained
=
nation's
services
F(k,)
production of
(GDP)
and
to scale:z7=F(21,22)
=
Estecapital
how
Then
Why
->
y
do
o
=
capita
per
from
in
a
goods
F(1,4 F(1,1)
*
intensive
overtime
=
constant
retrans
4
rise
f(k)
=
we
satisfies
write the
MPK.
production
person
perpersons
many
where
GDP/output per
tools
f(x)
each
person
has
f(m,1
=
function
this
in
form?
capital
8k
accumulation
sf(k)
change
I
0.38
S
=
Year
k
Y
I
k
i 2
b
k
y
=
Steadysf(x)
this arm,
capital
-
0.2
accumulation
in
steady
(NK2d)
0
=
-
-I
n2
0.i
f(x):
=)
c0.1k
3k"
8
fa
=
-
k
k
=
9,
=
3
s)y (1-0.3)y
=
state
->
0.1
=
=
=
=(1-
sf(n)-sk
=
3 x"
y=k
OK
on
->
=
E
11
6k
k"
I
Given
Sk
i
=
32
0.3
t
=
11
&R
Thus,
of scapital
(ssfes
=
state
In
accumulation
stock
C
*
a
capital
model
solow
in
k
0.1
=
key
8k2t
-
=
equation of
sf(x)
0.7x3-2.1
=
8k
=
in
in
↓
stay
investment
depreciation
↓
level
nowapitel
over
of
change
S
Ok
-
sf(x)
-
Sk
maximize
welfare
<)
consumption per person
time
not
of(),readySR
sf(x):
Because
state,
in
MPK
f(x)
of
slope
Sk*
=
M
of
level
-
capital
which
at
golden
crit
X
man
c*
slope
->
capital per person
f(k*)
=
for
these
den
greveg
Mp
z
whewe
is
& depreciation
investment
of f(x)
Maximum
dition con
8k*
-
capitalaccumulation
=MPK
↳
depreciation)
of
8 Crate
SK*
-slope of
S *
blur
Diff
f(x*) (erperson
-- consumption
↓
the
consumption
is
I
v
the
-
as
how
much
capital
consumption
the distance
max
per person
per person
blw
when
->
output
curve
MPK
changes
changes by
of
8
=
represents
Sn&
1
line
unit
of f(x)
If
E
on the
<
MPK
decrease
point
8
of change ofcapital)
rate
capital
depreciation.
So,
decrease
·12
arle.
I
-
=
goldensule,
Since
f(x)
-
of
8
MPK
=
f(k)
=
Ya
-
-
1
e.1
=
-
R
0.1
x"
=
->Ik
SMPK2
MPK=
desirative
MOY
c*
yck
for golden
8k*
f(x)
2)
less.
is
820.1
solve
:.
capital point.
accumulation.
S20.3
->
optimum
capital accumulation
Thus, consumption
c*
the
sightside of
2
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