1 / 25

Short-Run Income Models

Short-Run Income Models. Chapter 7. Production Possibilities Curve. Two linear production possibilities curves showing comparative advantage. Keynesian Model. Y = C + I + G + (X−M) C = a + bYd , Yd = Y−T M = d + mYd Exogenous Spending: (a + I + G +X –d). Regional income multiplier.

fineen
Download Presentation

Short-Run Income Models

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Short-Run Income Models Chapter 7 1

  2. Production Possibilities Curve 2

  3. Two linear production possibilities curves showing comparative advantage 3

  4. Keynesian Model • Y = C + I + G + (X−M) • C = a + bYd, • Yd = Y−T • M = d + mYd • Exogenous Spending: (a + I + G +X –d) 4

  5. Regional income multiplier • Marginal Propensity to consume locally: (b – m) 5

  6. Location Quotients 6

  7. Interpreting Location Quotients • LQ > 1: export industry • LQ = 1: produce for local consumption • LQ < 1: import industry 7

  8. Employment Multiplier 8

  9. Calculating Basic Employment 9

  10. Direct, indirect and induced effects on a production possibilities curve 10

  11. Input-Output Analysis • Total output (by rows): Xi = zi1 + zi2 + . . .  + zii + . . .  + zin + Yi • Total spending (by columns): • Xj = z1j + z2j + . . .  + znj + Vj = 11

  12. Buyers Sellers 12

  13. Technical (or direct) coefficients • Technical (or direct) coefficients (aij) • Technical coefficients show the quantity of output from each industry needed to produce final demand (the first round effect) 13

  14. Table of Technical Coefficients 14

  15. Leontief matrix and powers • Direct effect is represented by [I−A] • Direct effect + Indirect effect: I−A + A2 + A3 + . . . + An • The production needed to satisfy an increase in final demand (X): multiply the vector of final demand (Y) by the inverse of the Leontief matrix, X = [I−A]−1 Y 15

  16. Table of Multipliers 16

  17. Input-Output Multipliers 17

  18. Shift-Share Analysis • dij = gij + mij + cij, • gij = Eij0 rB, • mij = Eij0 (riB – rB) • cij = Eij0 (rij – riB) • (Eij0 is the number of employees in industry i within region j during time 0) • dij = Eij1 – Eij0 18

  19. Shift-Share Analysis 19

  20. Esteban-Marquillas Extension • Redefine Competitive Effect: cij′ = E′ij0 (rij– riB)where E′ij0 is homothetic employment: • E′ij0 = Ej(EiB/EB) • Allocative effect: aij = (Eij0 – E′ij0) (rij – riB) • Specialization effect (Eij0 – E′ij0) • Measure of comparative advantage (rij – riB): 20

  21. Policy implications of Esteban-Marquillas extension 21

  22. Short-Run Model of an Open Economy • E = C + I + G + (X – M) • In equilibrium, income (or output or actual expenditures) = Desired Expenditures: Y = C + I + G + (X – M) • C = a + bYd • Yd=Y – T • T = tY • M = d + mYd. 22

  23. Finding the multiplier • E = • a+ b (1 – t)Y + I + G + X – (d + m (1 – t) Y) • E = (b – m) (1 – t) Y +(a +I +G +X – d) • Since in equilibrium, Ye = E, 23

  24. Keynesian Cross 24

  25. Modeling Interregional Dependencies • Two regions c (core) and p (periphery) • Yi = Ci + Ii + Gi + (Xi−Mi) • Ci = ai + bYdi • Ydi=Yi−Ti • Ti = tiYi • Mi = di + mYi • Xc = Mp; • Xp = Mc 25

More Related