G6A
G6A
ECONOMICS (ECO-105D)
CHAPTER–06
Submitted to:
SUBMITTED BY
2021331089 TOWHEDUZZAMAN
2021331033 MD RAKIB AHMED AKASH
2021331007 S.M. ASHIKUR RAHAMAN
2021331009 MD. ABU BAKAR SIDDIQUE
2021331017 MAZHARUL ISLAM
2021331031 EBRATUL SHAHRIAR
2021331041 MD. THOWFIQUR BARI CHOWDHURY
2021331053 HASAN MAHMUD
Income and Spending:
The income and spending in macroeconomics deals with the distribution
and use of income
spendings in one part makes income for other. Therefore, this activity
creates an endless circular
flow of economy between all the sectors in a society.
modern society.
In this economy there are two sectors involved, one is households and the
other is business.
Here land, labor, capital, organization are called factors of productions and
rent, wages, interest,
Here,
o Net flow of goods and services will flow from External Sector
to business
Y = C + I + G + EX – IM
The identity, shown above, says that GDP is the sum of:
NX = Net Export
· The total value of all final products and services produced using
resources owned by a country’s residents, including income
earned abroad.
· The market value of all final goods and services produced within
a country in a specific period.
· Rent from Land: Income earned by property owners for the use of
their land.
· Profit:
In a two-sector economy, saving is the only way money is taken out, and
investment is the only way money comes in. An economy is in balance
when saving matches investment.
Now,
Y=C+I
or, Y(1 - b) = C₀ + I₀
Investment Function
Here,
Δy = m * ΔI
Where,
m = expenditure multiplier
▼ Mathematical Explanation
AD = AS
C+S+T=C+I+G
Income, Y = C + I + G
Where,
C = C0+ bYd
Here,
C = Income Consumption,
C0 = Autonomous Consumption,
Now,
Yd = Y − T
T = T0
I = I0
G = G0
Here,
Y = Income,
T0 = Autonomous Tax
I0 = Autonomous Income
G0 = Autonomous Government Spending
Now,
Y≡C+I+G
= C0 + bYd + I + G
= C0 + b(Y − T0 ) + I0 + G0
Y − bY = C0 − bT0 + I0 + G0
Equilibrium Income, Y*=1/1-b(Co-bTo+Io+Go)
dy/dI=1/1-b
2️⃣Government Spending Multiplier,
dy/dG=1/1-b
3️⃣Government Spending Multiplier,
dy/dT=-b/1-b
4️⃣Balanced Budget Multiplier (When G=T),
dy/dG=1-b/1-b=1
NX=X−M
Net export quantifies the extent to which a country's total exports surpass
its total imports, and a positive net export indicates a trade surplus.
● X = f(Y): This states that exports (X) are a function of national income
(Y).
● X = X₀: You've simplified this by assuming exports are autonomous,
meaning they are independent of national income. Therefore, exports
are a constant value (X₀). This could represent factors like global
demand for a country's goods, exchange rates, or trade agreements.
2. Import Function (M):
● Consumption (C):
○ C = C₀ + bY₀ (Note: It should be C = C₀ + bY_d where
Y_d is disposable income)
○ C₀ represents autonomous consumption (consumption when
income is zero).
○ b is the marginal propensity to consume (MPC).
● Disposable Income (Yd):
○ Yd = Y - T
○ Y is national income.
○ T is taxes.
● Lump Sum Tax (T):
○ T = T₀
○ Taxes are a fixed amount (lump sum).
● Investment (I):
○ I = I₀
○ Investment is autonomous (independent of income).
● Government Expenditure (G):
○ G = G₀
○ Government spending is autonomous.
● Net Export (NX):
○ NX = NX₀ - mY
○ NX₀ is autonomous net exports.
○ m is the marginal propensity to import (MPM).
○ Y = C + I + G + NX
2. Substituting the Equations:
○ Y = C₀ + b(Y - T₀) + I₀ + G₀ + NX₀ - mY
3. Solving for Y:
Multipliers
Multipliers in Macroeconomics
The Equations:
● ΔY = μ ⋅ ΔI
● ΔY = μ ⋅ ΔG
● ΔY = μ ⋅ ΔNX
Where:
The Logic:
The Result:
The final impact on national income (ΔY) is larger than the initial change in
spending (ΔI, ΔG, or ΔNX). The size of the multiplier (μ) depends on factors
like the marginal propensity to consume (MPC), the marginal propensity to
import (MPM), and the marginal propensity to save (MPS).
🌹 🥀 THE END