Professional Documents
Culture Documents
Household and Firm Behavior in The Macroeconomy: A Further Look
Household and Firm Behavior in The Macroeconomy: A Further Look
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Keynesian Theory of
Consumption: A Review
Keynes suggested that consumption is a
positive function of income, and that high-
income households consume a smaller
portion of their income than low-income
households.
The average propensity to consume is
the portion of income households spend on
consumption.
C
APC
Y
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Life-Cycle Theory of Consumption
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Life-Cycle Theory of Consumption
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Labor Supply Decision
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Labor Supply Decision
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Interest Rate Effects on Consumption
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Government Effects on Consumption and
Labor Supply: Taxes and Transfers
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
A Possible Employment
Constraint on Households
The budget constraint, which separates
those bundles of goods that are available
to a household from those that are not, is
determined by income, wealth, and prices.
When a household is constrained from
working as much as it would like, it
consumes less.
The amount that a household would like to
work at the current wage rate if it could find
the work is called the unconstrained
supply of labor.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Keynesian Theory Revisited
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Consumption Expenditures,
1970 I 2000 II
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Labor-Force Participation Rate for Men 25 to 54, Women
25 to 54, and All Others 16 and Over, 1970 I 2000 II
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Firms: Investment and
Employment Decisions
Inputs are the goods and services that
firms purchase and turn into output.
There are two ways that firms can add to
their stock of capital:
Plant-and-equipment investment refers to
purchases by firms of additional machines,
factories, or buildings within a given period.
Inventory investment occurs when a firm
produces more output than it sells within a
given period.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Employment Decisions
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Employment Decisions
A labor-intensive technology is a
production technique that uses a large
amount of labor relative to capital.
A capital-intensive technology is a
production technique that uses a large
amount of capital relative to labor.
The relative impact of an expansion of
output on employment and on investment
demand depends on the wage rate and the
cost of capital.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Expectations and Animal Spirits
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Accelerator Effect
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Excess Labor and
Excess Capital Effects
Excess labor and excess capital are
labor and capital that are not needed to
produce the firms current level of output.
Decreasing its workforce and capital stock
quickly can be costly for a firm.
Adjustment costs are the costs that a firm
incurs when it changes its production level
for example, the administration costs of
laying off employees or the training costs of
hiring new workers.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inventory Investment
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inventory Investment
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inventory Investment
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
A Summary of Firm Behavior
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
A Summary of Firm Behavior
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Employment in the Firm Sector,
1970 I 2000 II
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inventory Investment of the Firm Sector and
the Inventory/Sales Ratio, 1970 I 2000 II
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Productivity and the Business Cycle
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Employment and Output
over the Business Cycle
In general,
employment does not
fluctuate as much as
output over the
business cycle.
As a result, measured
productivity tends to
rise during expansions
and decline during
contractions.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Productivity in the Long Run
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Relationship Between
Output and Unemployment
Okuns Law is a theory put forth by Arthur
Okun, that the unemployment rate
decreases about one percentage point for
every 3 percent increase in real GDP.
Later research and data have shown that
the relationship between output and
unemployment is not as stable as Okuns
law predicts.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Relationship Between
Output and Unemployment
There are three slippages that combine
to make the change in the unemployment
rate less than the percentage change in
output in the short run:
1. When output rises by 1 percent, the number of
jobs does not tend to rise by 1 percent in the
short run.
2. There are more jobs than there are people
employed. Some of the jobs are filled by
people who already have one job.
3. Discouraged workers move back into the labor
force.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Size of the Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Size of the Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Size of the Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Size of the Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair