Transcript
Markets, Prices, Supply & Demand 1EC4004 Lecture 17Dr S. Kinsella
National Income AccountingY=C+I+G+X-M
Solowk* = k*[ s, A, n, δ, L(0) ]
(+) (+) (−) (−)(0)
National Income AccountingY=C+I+G+X-M
Solowk* = k*[ s, A, n, δ, L(0) ]
(+) (+) (−) (−)(0)
National Income AccountingY=C+I+G+X-M
Barro Model
The Macroeconomy is the sum of Supply
and Demand in Individual Markets
Today
1. Recap
2. Equilibrium in the Markets
1. Goods
2. Rental
3. Bonds
4. Money
3. Consumption, Saving, and Investment
Household Behaviour
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MarketsintheMacroeconomy
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MarketsintheMacroeconomy
Assumingthathouseholdsperformallofthefunc7onsintheeconomy.
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MarketsintheMacroeconomy
Assumingthathouseholdsperformallofthefunc7onsintheeconomy.
Eachhouseholdrunsafamilybusinessanduseslabour,L,andcapital,K,toproducegoods,Y,throughtheproduc7onfunc7on.
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MarketsintheMacroeconomy
Assumingthathouseholdsperformallofthefunc7onsintheeconomy.
Eachhouseholdrunsafamilybusinessanduseslabour,L,andcapital,K,toproducegoods,Y,throughtheproduc7onfunc7on.
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MarketsintheMacroeconomy
Assumingthathouseholdsperformallofthefunc7onsintheeconomy.
Eachhouseholdrunsafamilybusinessanduseslabour,L,andcapital,K,toproducegoods,Y,throughtheproduc7onfunc7on.
Y=A· F(K,L)
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MarketsintheMacroeconomy
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MarketsintheMacroeconomy
TheGoodsMarket
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MarketsintheMacroeconomy
TheGoodsMarketHouseholdssellallthegoodstheyproduceonagoods market.Thenhouseholdsbuybackfromthismarketthegoodsthattheywant.
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MarketsintheMacroeconomy
TheGoodsMarketHouseholdssellallthegoodstheyproduceonagoods market.Thenhouseholdsbuybackfromthismarketthegoodsthattheywant.
Householdbuysgoodsfor
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MarketsintheMacroeconomy
TheGoodsMarketHouseholdssellallthegoodstheyproduceonagoods market.Thenhouseholdsbuybackfromthismarketthegoodsthattheywant.
Householdbuysgoodsfor• consumption.
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MarketsintheMacroeconomy
TheGoodsMarketHouseholdssellallthegoodstheyproduceonagoods market.Thenhouseholdsbuybackfromthismarketthegoodsthattheywant.
Householdbuysgoodsfor• consumption.
toincreasethestockofgoodsintheformofcapitalusedforproduc7on,calledinvestment.
Consumption
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MarketsintheMacroeconomy
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MarketsintheMacroeconomy
LabourMarket
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MarketsintheMacroeconomy
LabourMarket
Householdssupplylabouronalabour market.
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MarketsintheMacroeconomy
LabourMarket
Householdssupplylabouronalabour market.Assumequan7tysupplied,Ls,isaconstant,L.
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MarketsintheMacroeconomy
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MarketsintheMacroeconomyTheRentalMarket
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MarketsintheMacroeconomyTheRentalMarketEachhouseholdrentsoutallofthecapitalitownsonarental market.
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MarketsintheMacroeconomyTheRentalMarketEachhouseholdrentsoutallofthecapitalitownsonarental market.Capitalofferedontherentalmarketisthesupplyofcapitalservices,Ks.
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MarketsintheMacroeconomyTheRentalMarketEachhouseholdrentsoutallofthecapitalitownsonarental market.Capitalofferedontherentalmarketisthesupplyofcapitalservices,Ks.
AssumehaveKs =K.
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MarketsintheMacroeconomy
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MarketsintheMacroeconomyTheBondMarket
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MarketsintheMacroeconomyTheBondMarketAborrowinghouseholdreceivesaloanfromanotherhousehold.Alendinghouseholdprovidesaloantoanotherhousehold.
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MarketsintheMacroeconomyTheBondMarketAborrowinghouseholdreceivesaloanfromanotherhousehold.Alendinghouseholdprovidesaloantoanotherhousehold.
Ahouseholdmakingloangetsapieceofpapercalledabond.
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MarketsintheMacroeconomyTheBondMarketAborrowinghouseholdreceivesaloanfromanotherhousehold.Alendinghouseholdprovidesaloantoanotherhousehold.
Ahouseholdmakingloangetsapieceofpapercalledabond.Callthemarketonwhichhouseholdsborroworlendthebond market.
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MarketsintheMacroeconomyTheBondMarketAborrowinghouseholdreceivesaloanfromanotherhousehold.Alendinghouseholdprovidesaloantoanotherhousehold.
Ahouseholdmakingloangetsapieceofpapercalledabond.Callthemarketonwhichhouseholdsborroworlendthebond market.
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MarketsintheMacroeconomyTheBondMarketAborrowinghouseholdreceivesaloanfromanotherhousehold.Alendinghouseholdprovidesaloantoanotherhousehold.
Ahouseholdmakingloangetsapieceofpapercalledabond.Callthemarketonwhichhouseholdsborroworlendthebond market.
Theholderofabond,thelender,hasaclaimtotheamountowedbytheborrower.
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MoneyasaMediumofExchange
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MoneyasaMediumofExchangeAssumeexchangesinmarketsuseasinglemedium of exchange.
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MoneyasaMediumofExchangeAssumeexchangesinmarketsuseasinglemedium of exchange.
MONEY
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MoneyasaMediumofExchangeAssumeexchangesinmarketsuseasinglemedium of exchange.
MONEY
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MarketsintheMacroeconomy
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MarketsintheMacroeconomy
Sumofindividualholdingsofmoneyequalstheaggregatequan7tyofmoneyintheeconomy.
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MarketsintheMacroeconomy
Sumofindividualholdingsofmoneyequalstheaggregatequan7tyofmoneyintheeconomy.
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MarketsintheMacroeconomy
Sumofindividualholdingsofmoneyequalstheaggregatequan7tyofmoneyintheeconomy.
Thetotalmoneyheldbyallhouseholdsmustendupequalingthisconstant.
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MarketsandPrices
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MarketsandPricesTheGoodsMarket
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MarketsandPricesTheGoodsMarketThepriceinthismarket,denotedbyP,expressesthenumberofeurosthatexchangeforoneunitofgoods.WecallP theprice level.
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MarketsandPrices
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MarketsandPrices
TheGoodsMarket
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MarketsandPrices
TheGoodsMarket–Y=A· F(K,L)
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MarketsandPrices
TheGoodsMarket–Y=A· F(K,L)
Sinceallofthesegoodsaresoldonthegoodsmarket,thevariableY willalsorepresentthe
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MarketsandPrices
TheGoodsMarket–Y=A· F(K,L)
Sinceallofthesegoodsaresoldonthegoodsmarket,thevariableY willalsorepresenttheQuan7tyofgoodsperyearsoldandboughtonthegoodsmarket.
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MarketsandPrices
TheGoodsMarket–Y=A· F(K,L)
Sinceallofthesegoodsaresoldonthegoodsmarket,thevariableY willalsorepresenttheQuan7tyofgoodsperyearsoldandboughtonthegoodsmarket.
Thequan7tyPY istheeurovalueperyearofthegoodsboughtandsoldonthegoodsmarket.
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MarketsandPrices
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MarketsandPrices
TheGoodsMarket
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MarketsandPrices
TheGoodsMarketForsellersofgoods,thepricelevel,P,isthenumberofeurosobtainedforeachunitofgoodssold.
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MarketsandPrices
TheGoodsMarketForsellersofgoods,thepricelevel,P,isthenumberofeurosobtainedforeachunitofgoodssold.
Forbuyers,P isthenumberofeurospaidperunitofgoods.
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MarketsandPrices
TheGoodsMarketForsellersofgoods,thepricelevel,P,isthenumberofeurosobtainedforeachunitofgoodssold.
Forbuyers,P isthenumberofeurospaidperunitofgoods.
SinceP eurosbuy1unitofgoods,€1buys1/P unitsofgoods.
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MarketsandPrices
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MarketsandPrices
TheGoodsMarket
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MarketsandPrices
TheGoodsMarketTheexpression1/P isthevalueof€1intermsofthegoodsthatitbuys.
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MarketsandPrices
TheGoodsMarketTheexpression1/P isthevalueof€1intermsofthegoodsthatitbuys.
–M eurosexchangefor
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MarketsandPrices
TheGoodsMarketTheexpression1/P isthevalueof€1intermsofthegoodsthatitbuys.
–M eurosexchangefor(M)· (1/P)=M/P
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MarketsandPrices
TheGoodsMarketTheexpression1/P isthevalueof€1intermsofthegoodsthatitbuys.
–M eurosexchangefor(M)· (1/P)=M/P
AnexpressionlikeM/P isinreal terms,inunitsofgoods,whereasaquan7tylikeM isineuroornominalterms.
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MarketsandPrices
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MarketsandPrices
TheLabourMarket
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MarketsandPrices
TheLabourMarketHouseholdsbuyandselllabourinthelabourmarketattheeuroornominal wage rate,w.
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MarketsandPrices
TheLabourMarketHouseholdsbuyandselllabourinthelabourmarketattheeuroornominal wage rate,w.
Thereal wage rate isw/P.
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MarketsandPrices
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MarketsandPrices
TheRentalMarket
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MarketsandPrices
TheRentalMarketHouseholdsrentoutcapital,K,foreurosattheeuroornominal rental price,R
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MarketsandPrices
TheRentalMarketHouseholdsrentoutcapital,K,foreurosattheeuroornominal rental price,RAhouseholdthatrentstheamountofcapitalKd paysthenominalamountRKd peryearandthengetstousethecapitalasaninputtoproduc7on.
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MarketsandPrices
TheRentalMarketHouseholdsrentoutcapital,K,foreurosattheeuroornominal rental price,RAhouseholdthatrentstheamountofcapitalKd paysthenominalamountRKd peryearandthengetstousethecapitalasaninputtoproduc7on.
Thereal rental price isR/P.
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MarketsandPrices
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MarketsandPrices
TheLabourMarket
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MarketsandPrices
TheLabourMarketHouseholdsbuyandselllabourinthelabourmarketattheeuroornominal wage rate,w.
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MarketsandPrices
TheLabourMarketHouseholdsbuyandselllabourinthelabourmarketattheeuroornominal wage rate,w.
Thereal wage rate isw/P.
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MarketsandPrices
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MarketsandPricesTheBondMarket
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MarketsandPricesTheBondMarketEachunitofbondscommitstheborrowertorepay€1totheholderofthebond.This€1istheprincipal ofeachbond.
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MarketsandPricesTheBondMarketEachunitofbondscommitstheborrowertorepay€1totheholderofthebond.This€1istheprincipal ofeachbond.
Theprincipalistheini7alamountadvancedonaloan.
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MarketsandPricesTheBondMarketEachunitofbondscommitstheborrowertorepay€1totheholderofthebond.This€1istheprincipal ofeachbond.
Theprincipalistheini7alamountadvancedonaloan.
Allbondshaveveryshortmaturity,
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MarketsandPrices
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MarketsandPrices
TheBondMarket
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MarketsandPrices
TheBondMarketEachunitofbondscommitstheborrowertopaytheholderaflowofinterestpaymentsof€i peryear.
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MarketsandPrices
TheBondMarketEachunitofbondscommitstheborrowertopaytheholderaflowofinterestpaymentsof€i peryear.Thevariablei is the interest rate,whichisthera7ooftheinterestpayment,€i,totheprincipal€1.
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MarketsandPrices
TheBondMarketEachunitofbondscommitstheborrowertopaytheholderaflowofinterestpaymentsof€i peryear.Thevariablei is the interest rate,whichisthera7ooftheinterestpayment,€i,totheprincipal€1.Theinterestrate,i,canvaryover7me.
NextTime
NextTime
Construc7ngtheBudgetConstraint
NextTime
Construc7ngtheBudgetConstraint
Inter‐temporalConsump7on
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