Lecture 1Macroeconomic Modeling

Simple Model

Y=C+I C=αY

AD=C+I DefinationC=αY Behavior Function

Y=AD Equilbrium Assumption (Keyesian Assumption)

Assumptions: Individual sector Sectors business sector InstitualAssumption Market: Goods market Individual: Get all income , Behavior consumption , saving Assumption Business: production, services , Investment

Equilibrium Assumptions: Keyesian Assumption: Y=AD

Output-Adjustment (or Quantity-Adjustment)

Price-Adjustment Adaptive

1 2

AD=C+IC= Y- PY= (AD-Y)

1 1( )t t t ty AD y y

Flow-Chat Individual

Business

Saving

AS

ADGoods market

Causuality :

① I AD Y C① ③ ②

Multiplier( 对应上图假设 I 增加一个单位 )

period 1 1 1 1 period 2 0 period 3 0 …………………………………… Period n 0

Total change: When

2 2

3

2

2 ny=1+ + + + 1,0 1 Total y=

1-n

1n nn

Simple & Beauty :

y=C+I ① C=αy ② substitute ② into , we get:① y=I*1/(1-α) then △ y= I*1/(1-α)△

Extension: Government

Assumption:

G (spending)Government T (taxing) TR (transfer)

Taxation: T=t0 + ty

Case1:t0 <0 , 0<t<1 t

t1 t2

0 y1 y2 y

Taxation: T=t0 + ty

Case2:t0 >0 , 0<t<1 t

t1 t2

0 y1 y2 y

Taxation: T=t0 + ty

Case3:t0 =0 , 0<t<1,T=ty Proportional Tax

Case4:t0 =0,T= t0 Lump-sum Tax

Consumption Function

C=α =y-T+TR

dydy

Model

ADyttyTTRTyy

yC

GICAD

d

d

假定為比例稅率）(10,

Flow-Chart

Individual

Business

y

yd

Saving

AD

AS

Government

Good market

Policy Analysis

財政政策 T(t),TR,G

y=1 [ ]

1 (1 )I G TR

t

1 1, ,1 (1 ) 1 (1 ) 1 (1 )

y G y I y TRt t t

Policy Design

① Maths: ② Targets :Case I:

Case II:

yxyxyxyxyx ),(,)(

12

cy

20( ( ) 0)

yBudget G T G T

Policy Design

③ Environment Analysis:Uncontrable Exogenous Variable:

④ Policy Design :I

,0 1

,0 1

d

d

AD C I G

C y

y y T TRT t y t y ty AD

Policy Design

Case I: Assumption: =0

2 1 0

1

22

d

d

G

y

y T TRT t y t

11 (2 2 )G

t y t TR

I

Policy Design

(1)

(2)

tTR

Gt

2211

0

y

tt

G

TR )]1(21[

1

0

Policy Design

(3)

10

1 (2 2 )G

TRt y t TR

,0t

IS-LM Model: Financial sector, assets market

Financial sector Assumption: earning assets : Assets market stock ,bond non-earning assets:money

interest rate 按 Walras’law, 只要两个市场均衡，则第三个市场会自动达到均衡，所以 IS-LM Model 只研究 goods mar

ket &non-earning assets market.

Goods market

IS curse

00

01 1 ( ) ( )

AD C I GC Y

Y Y I r GI I rY AD

r I G Y

Money Market

LM curve

dm

1 ( )( )

s ss

s d

s

kY lr

M Mm kY lrp p

m m

M kr Yl p l

Equilibrium : IS-LM

Macroeconomic database :

Industrial output--------y CPI----------Price G T TR

m0 m1 m2 loan

The end