Appunti Business Economics & Organization (Mechanical Engr. POLITO)-MACROECONOMICS, Appunti di Business Planning

Scarica Appunti Business Economics & Organization (Mechanical Engr. POLITO)-MACROECONOMICS e più Appunti in PDF di Business Planning solo su Docsity! LESSON 9 – 05/11/18 MACROECONOMICS INTRODUCTION Macroeconomy is a branch of the economy which studies how the aggregate economy behaves. In macroeconomics, a variety of economic-wide phenomena is carefully examined, such as inflation, rate of growth, gross domestic product GDP, and changes in the unemployment level. There are two ways to study the economy: the macroeconomic one and the microeconomic one. As the term implies, macroeconomics looks at the overall, at the big picture of the economy. Put simply, it focuses on the way the economy performs as a whole in the world: this includes looking at variables like unemployment, GDP and inflation, on the whole. The government uses these factors and models to help development of its own economic policies. Through central banks, the governments will come up with fiscal and monetary policies to keep the economy in check. On the other hand, microeconomics looks at the behaviour of individual factors in an economy, like people, households, industries, etc. We'll look at the differences a bit more later. Macroeconomy is considered as the composition of two kinds of market: goods marked (IS) and financial market (LM): we’ll use a short-time model, without considering inflation phenomenon which changes the behaviour of the firms in the investments, so, in the amount that durable producer goods have on the demand in a country. INTRODUCTION TO GOODS MARKET As we’ve said, goods market has some main characters, GDP, inflation, and unemployment rate. Let’s consider the GDP, which is the unique element of interest in a short-time model, taking as given inflation rate and unemployment rate; how it’s composed? Recalling the different types of goods (Consumer and producer ones, both splitted in durable and non-durable ones) we get that the demand in a country is made of: • CONSUMPTION: C, which denote the amount of value of all the consumer goods, durable or not. • INVESTMENTS: I, which denote the amount of value of all the durable producer goods, considering also the inventories. • GOVERNMENT SPENDINGS: G, which doesn’t consider the government unilateral transfers TR, but only how much the government spend in order to provide services. • NET EXPORTS: NE, which is the difference between the whole values of imports IM and exports X in an open market trade. So, we can work out with the equation of the demand: Where Z denote the total demand of a country, made of consumption, investments, government spending, and net export. In an equilibrate economic system we have the equilibrium between the demand and the production, denoted by Y: the production (GDP) of a country satisfy the demand (Z) (Z = Y), recalling that the GDP is the sum of all the final goods (Non-intermediate such as the non-durable producer goods); We can finally denote the GDP as Y’ in case of equilibrium. Finally, we can take the assumption of a closed economy, without imports and exports, so without to consider the net export parameter, getting the final equation of equilibrium for the production of a country. Let’s study now the variables which are in the equation of the demand: consumption, investments, and government spending. CONSUMPTION The households final consumption is the sum of all the values of all the consumer goods, not only single-use (Foods, drink, tobacco, cinema…), but durable-use as well (Clothes, furniture, cars…). What does the value of C depend on? Recalling that it’s referred to households, we can study the 3 theories about the consumption of a household: 1. KEYNESIANS APPROACH or TEMPORARY INCOME THEORY (By John Michael Keynes). According to this theory, consumption of a household during a period is function of the disposable income of that period. Disposable income, YD, is the income that remains once consumers have paid taxes and received transfers from the government, so Where T are the taxes and TR are the unilateral transfers of the government. The function of consumption related with the disposable income, is named “consumption function”, and it’s a behavioural equation (It could change in different countries in the world); a more specific view of the consumption function is: Where c0 denote the basic consumption to survive, and it’s named “autonomous consumption index” (ACI), and c1 denote the increase in the consumption C for a given increase in the disposable income, and it’s called “marginal propensity to consume” (MPC). We’re saying: household spends a fixed amount of money c0, and a variable part which depends on the disposable income. We can see its mathematical formula as Usually c1 ranges between 0.5 and 0.7 in modern economy (So, we can see it like this: if I receive 1 euro, how much of this euro I’ll spend?). The consumption function is a straight line, with c0 as quota, and c1 as the rate, in the diagram C – YD. 2. MILTONIAN APPROACH or PERMANENT INCOME THEORY (By Milton Friedman). The last approach, the Keynesian one, only bases consumption on current income, while in this one, Milton Friedman developed the permanent income hypothesis: the choices made by consumers regard their consumption patterns are determined not by current income but by their longer-term income expectations: • Transitory and short-term changes in income have no effect (Or very little) on consumer spending behaviour. • The individual will consume a constant proportion of his/her permanent income, for which he/she has an expectation. • Only permanent or long-term changes in income affect consumption choices. Overall, it’s a theory based on the expectation of the consumer.