Principles of Macroeconomics Day 4 - Malthus

1. Principles of MacroeconomicsDay 4 - Malthus Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” 卜安吉

2. Thomas Robert Malthus • An Essay on the Principle of Populationas it Affects the Future Improvement of Society (1798):  • In this famous work, Malthus posited his hypothesis that (unchecked) population growth always exceeds the growth of means of subsistence due to the fixed land resources in the world.  • Malthus was a Classical Economist along with Adam Smith, David Hume and David Ricardo Principles of Macroeconomics, Day 4 - Malthus

3. Mathus’ Logic • “Food is necessary to the existence of Man” • “The Passion between the sexes is necessary and will remain nearly in its present state” • His conclusion: • “The power of population is infinitely greater than the power in the earth to produce subsistence for man.” Principles of Macroeconomics, Day 4 - Malthus

4. Thomas Robert Malthus • Malthus' hypothesis implied that actual population always has a tendency to push above the food supply due to arable land available. • The only Check on population growth was “misery and vice.” Principles of Macroeconomics, Day 4 - Malthus

5. Thomas Robert Malthus http://cepa.newschool.edu/het/profiles/malthus.htm An English minister, 1766-1834 Principles of Macroeconomics, Day 4 - Malthus

6. Thomas Robert Malthus Actual (checked) population growth is kept in line with food supply growth by "positive checks" (starvation, disease and the like, elevating the death rate) and "preventive checks" (i.e. postponement of marriage, etc. that keep down the birthrate), both of which are characterized by "misery and vice". Principles of Macroeconomics, Day 4 - Malthus

7. Where did Mathus go wrong? • Growth in Human Ingenuity has offset the effects of a larger population growth. • Pesticides, fertilizers, mechanized equipment, new crop varieties, and other technological advances. • One of the resources for the above is N. Gregory Mankiw’s book, Principles of Macroeconomics, 2007 Principles of Macroeconomics, Day 4 - Malthus

8. A C T I V E L E A R N I N G 1A. Calculations • Suppose GDP equals $10 trillion, consumption equals $6.5 trillion, the government spends $2 trillion and has a budget deficit of $300 billion. • Find public saving, taxes, private saving, national saving, and investment. Principles of Macroeconomics, Day 4 - Malthus 8

9. A C T I V E L E A R N I N G 1B. How a tax cut affects saving • Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $200 billion. • In each of the following two scenarios, determine what happens to public saving, private saving, national saving, and investment. 1. Consumers save the full proceeds of the tax cut. 2. Consumers save 1/4 of the tax cut and spend the other 3/4. Principles of Macroeconomics, Day 4 - Malthus 9

10. A C T I V E L E A R N I N G 1C. Discussion questions The two scenarios from this exercise were: 1. Consumers save the full proceeds of the tax cut. 2. Consumers save 1/4 of the tax cut and spend the other 3/4. • Which of these two scenarios do you think is more realistic? • Why is this question important? Principles of Macroeconomics, Day 4 - Malthus 10

11. SPACE Principles of Macroeconomics, Day 4 - Malthus

12. Principles of Macroeconomics, Day 4 - Malthus

13. A C T I V E L E A R N I N G 1Answers, part A Given: Y = 10.0, C = 6.5, G = 2.0, G – T = 0.3 Public saving = T – G = – 0.3 Taxes: T = G – 0.3 = 1.7 Private saving = Y – T – C = 10 – 1.7 – 6.5 = 1.8 National saving = Y – C – G = 10 – 6.5 = 2 = 1.5 Investment = national saving = 1.5 Principles of Macroeconomics, Day 4 - Malthus 13

14. A C T I V E L E A R N I N G 1Answers, part B In both scenarios, public saving falls by $200 billion, and the budget deficit rises from $300 billion to $500 billion. 1.If consumers save the full $200 billion, national saving is unchanged, so investment is unchanged. 2.If consumers save $50 billion and spend $150 billion, then national saving and investment each fall by $150 billion. Principles of Macroeconomics, Day 4 - Malthus 14