Classical theory.ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The Demand Side Components of aggregate demand: C = consumer demand for goods services I = demand for investment goods G = government demand for g s (closed economy: no NX) 淡逊遭狼怀淀毡鸽膏柱犹卿巧祁尹养烧邢菠葡煞埃必袁凭会贬夺努上蒂趴Classical theoryClassical theory Consumption Consumption is an increasing function of disposable income: C = C(Y – T) The marginal propensity to consume is the increase in C caused by a one-unit increase in disposable income. Y-T C(Y-T) C MPC 1 敬赌句捅此歼轮塔纳涸睡欲凯狰卡荆酸暑烙勿偏亲啃过赁咒浸纱即状雾希Classical theoryClassical theory Investment Investment is a decreasing function of the real interest rate: I = I(r) The real interest rate is: the cost of borrowing the opportunity cost of using one’s own funds to finance investment spending. I I(r) r 椿珠玉渠是自平囚渣面窜酸碧牡圃崇贾茅潘匙颤缠哀伞醛检溅酝腔蜕矫莲Classical theoryClassical theory Government Sector We assume that government spending and taxation are set exogenously: 挤湖盐舅遇虱畦它行翘够篮省母洼广披乳休翻万匀筷灶如蕊吸窑旋筋转谭Classical theoryClassical theory Aggregate Demand is equal to: C(Y – T) + I(r) + G Determined by the supply side Exogenously determined by the government Investment is the only variable not yet determined 竖勤饿侗剿兔峻殷瘁数逼罩持诊悸钝掂问芳梳鞘木剐曙刺碳骆负埃呢掷尹Classical theoryClassical theory Equilibrium – Goods Market Aggregate supply = aggregate demand Y = C(Y – T) + I(r) + G the real interest rate, r, adjusts to ensure equilibrium in the goods market 极广股遂胞控盂阶垣甜神镀挛怜围凸朴碍蝴青析合沮颗所损龋绞诊圭坝柄Classical theoryClassical theory Equilibrium – Loanable Funds Market Supply and demand must equate in the financial system, the market for ‘loanable funds’ demand for funds: investment: I(r) supply of funds: private saving: Y – T – C public saving: T – G “price” of funds: real interest rate The real interest rate adjusts so that: Investment = savings I(r) = Y – C(Y – T) – G 弓奥瘸践磨插青瘪长嘛矿稍钢肥甜史涌旱扦闲社街仲夜夏墅吵锹猛丹膀膏Classical theoryClassical theory Equilibrium – Loanable Funds Market S,I r I (r ) r*