Download presentation

Presentation is loading. Please wait.

1
**Simple Keynesian Model**

National Income Determination Four-Sector National Income Model

2
**Outline Four-Sector Model Import Function M = f(Y)**

Export Function X = f (Y) Net Exports X - M Aggregate Expenditure Function E = f(Y) Output-Expenditure Approach: Equilibrium National Income Ye

3
**Outline Factors affecting Ye Expenditure Multipliers k E**

Tax Multipliers k T Balanced-Budget Multipliers k B Injection-Withdrawal Approach: Equilibrium National Income Ye

4
Four-Sector Model With the introduction of the foreign sector (i.e. w/ households C, firms I, government expenditure G) aggregate expenditure E consists of one more component, net exports X- M. E = C + I + G + (X - M) Still, the equilibrium condition is Planned Y = Planned E

5
Import Function Imports M is usually assumed to be a function of national income Y. M = M’ M = mY M = M’ + mY M and Y are assumed to be positively correlated. M = M’ + mY is the typical form being used

6
**Import Function Autonomous Imports M’**

this is the y-intercept of the import function M’ is an exogenous variable, i.e., independent of the income level Y and is determined by forces outside the simple Keynesian 4-sector model

7
**Import Function Marginal Propensity to Import MPM = m**

this is defined as the change in imports per unit change in income Y, i.e., m = M / Y it is the slope of tangent of the import function it is usually assumed to be a constant m = 0 or m is a +ve number MPM is also an exogenous variable

8
**Import Function Average Propensity to Import APM**

it is the ratio of total imports to total income, i.e., APM = M / Y it is the slope of ray of the import function APM when Y except M = mY when MPM = APM = m

9
**Import Functions M M M Y Y Y M = M’ y-intercept = M’**

slope of tangent = 0 slope of ray as Y M = mY y-intercept = 0 slope of tangent = m slope of ray = m M = M’ + mY y-intercept = M’ slope of tangent = m slope of ray as Y M M M Y Y Y

10
**Export Function X = f (Y)**

this is a relationship between the amount of exports X and national income Y it is usually assumed to be an exogenous function X = X’ We always consider the amount of net exports, i.e., X - M Net exports = X - M = X’ - M’ - mY

11
Net Exports When net exports is positive, i.e., when X > M, the external sector BOP is in surplus When net exports is negative, i.e., when X < M, the external sector BOP is in deficit When net exports is zero, i.e., when X = M, the external sector BOP is in balance {Trade deficit/surplus v.s. Budget deficit/surplus}

12
**Net Exports M, X M = M’ + mY External Deficit X = X’ Y Y1 Y2 Y3**

Surplus How can you determine Ye from this diagram? Y Y1 Y2 Y3

13
**Aggregate Expenditure Function**

E = C + I + G + (X - M) C = C’ + cYd T = T’ + tY I = I’ G = G’ X = X’ M = M’ + mY E =

14
**Aggregate Expenditure Function**

15
**Output-Expenditure Approach**

In equilibrium Y = E Y = ( )Y = Y = k E * E’ k E = E’ =

16
**Factors affecting Ye Change in E’ If X’ E’ E Y **

If M’ E’ E Y Change in slope of tangent of E / k E If m c-ct- m E steeper Y

17
Import Multiplier k M It is the ratio of change in national income Y to a change in autonomous import M’ Y = M’ -1 1 - c - m + ct

18
**Injection-Withdrawal Approach**

S, T, M, I, G, X S = -C’+cT’-T’ + (1-c)Y if T = T’ I+G+X=I’+G’+X’ M= M’+ mY T = T’ Y

Similar presentations

OK

Economic Models The selection of variables What is the difference between an endogenous variable and an exogenous variable? What are the endogenous variables.

Economic Models The selection of variables What is the difference between an endogenous variable and an exogenous variable? What are the endogenous variables.

© 2017 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on conservation of environment song Ppt on model view controller example Ppt on media revolution help Ppt on ideal gas laws Ppt on cross-sectional study Free convert pdf to ppt online Ppt on indian politics 2016 Ppt on scientific monuments of india and china Properties of water for kids ppt on batteries Ppt on ceramic ball bearings