Personal income is the sum of material goods and funds produced or received over a certain period of time. The role of income is that the level of consumption directly depends on the size of it.

Cash income includes all financial income from business activities, various benefits, pensions, scholarships, property, interest on deposits, rent, dividends, profits from sales valuable papers, services provided and so on.

The level of income is an important indicator of the well-being of members of society, since it determines the possibilities of an individual’s spiritual and material life: obtaining a good education, recreation, meeting needs, maintaining health.

To analyze income levels and their dynamics, indicators such as nominal, real and disposable income are used. Let's look at them in more detail.

There is also another definition of the concept, according to which it is understood as the part of national income intended to meet the needs of the population and created in the production process. Thus, gross national disposable income must compensate for labor costs, that is, all the mental and physical abilities of the population that were expended in production.

However, in modern society There is an uneven distribution of national income. As a result, certain categories of the population have insufficient resources to maintain vitality at the required level. In this case, the state is forced to use the budget, and entrepreneurs, through their own profits, replenish the finances of the population and thereby increase disposable income.

At each stage of life, a citizen of a country and his family have different opportunities to receive money. At the same time, at each stage they have their own needs, they are faced with tasks corresponding to the stages of life. And they strive to satisfy needs in different ways.

Disposable income depends on lifestyle, class, ability to work, health, market opportunities, labor market conditions, risk situation and other factors.

Belonging to a social class obliges a citizen to lead a certain way of life inherent in that class. To ensure the ability to act in accordance with value concepts and satisfy needs and interests, a certain level of income is required.

Stable consumption is ensured through the accumulation of funds, the creation of funds and their redistribution. Those surpluses that were generated in favorable years are redistributed and then used in less profitable periods. This makes it possible to meet the needs of the population and maintain stable

Disposable income is an indicator characterizing the relationship of GDP with other macro indicators. This list also includes: personal income. As a percentage, personal disposable income is 71.5 percent of GDP (for example, this indicator is observed in the USA).

Calculation of disposable income

You can calculate your income quite simply. To do this, you need to know such indicators as GDP, depreciation charges, the amount of profit of business entities minus net interest, as well as dividends, household interest and individual taxes and fees.

Using simple mathematical operations (addition and subtraction) one can find disposable personal income. This can be represented as a formula:

• LRD = GDP - JSC - KN + D - PC - PE + DD + PD - IN - SB, where

  AO - depreciation charges;
  KN - indirect taxes;
  D - income received by the algebraic difference from income created by residents abroad and non-residents in the state;
  PC - corporate profit;
  PE - net interest;
  DD - dividends received by households;
  PD - interest received by households;
  IN - individual taxes;
  SB - savings.

Auxiliary Terminology

When considering the indicators associated with the indicator under consideration, it is necessary to clarify the following.

Clean domestic product is obtained by subtracting depreciation from GDP and the amount of indirect taxes determined minus the amount of subsidies. This figure exceeds disposable national income.

Personal income includes the total income of households before subtracting the taxes they paid. At the same time, personal disposable income is the amount received after paying all individual taxes. Thus, the last indicator reflects the part of GDP received by households in the state for savings and current consumption.

Gross disposable income

This indicator in market prices is equal to the total amount plus the balance of transfers that are received from various non-residents or transferred to them in the form of donations, gifts and Thus, this is an accumulating indicator of all sectors of the economy.

The next indicator - net disposable national income - is the difference between the previous indicator and consumed fixed capital. In general, the formula takes the form:

• CHRND = VRND - POK.

This macro-indicator shows the amount of income that can be used by residents of the state for personal consumer expenses or set aside for the purpose of accumulation.

Personal consumer expenditures include all costs associated with the purchase of services and goods by households, as well as the costs of various government organizations and public non-profit institutions that are responsible for servicing households.

Secondary income distribution

As mentioned above, all macro indicators are closely related to each other and are formed in strict sequence.

Thus, the redistribution of everyone ends with the formation of disposable income, adjusted by economic sector. It differs from the corresponding gross indicator by the amount of social transfers in kind. The structure of the latter contains the following elements: social benefits expressed in kind (for example, the costs of social security funds for medical care); non-commercial products government agencies and non-profit organizations that serve households; products purchased directly from manufacturers with the aim of providing them to households free of charge or at formal prices.

Comparison of macro indicators

In general, the amount of disposable income and the adjusted similar indicator are the same. This is due to the fact that direct adjustments are made across sectors of the state’s economy. At the same time, social transfers in kind should not affect financial and non-financial enterprises.

This adjustment is carried out in the context of three main sectors of the economy, public administration organizations and non-profit organizations responsible for servicing households.

As for the government sectors and the above-mentioned non-profit organizations, the amount of disposable income is equal to the difference between the corresponding value of each individual sector and the amount of social transfers in kind.

The adjusted income in the household sector can be determined by adding to the amount already received in the two previous transfer sectors.

Relationship between indicators

The macroindicators indicated in this article are structural elements of the system of national accounts. Using them you can solve the following problems:

• calculate generalizations that characterize the results of economic activity;
• explore the dynamics of macroeconomic indicators;
• analyze various macroeconomic proportions.

The basis for modeling all macroeconomic processes is the relationship between national disposable income and other indicators of the state economy. Models formed in this way can be used to substantiate financial and management decisions at various levels of the economy (micro-, meso- and macro-).

Disposable income value

To summarize the material presented in this article, it should be noted that disposable national income is a resource that can be used for personal consumption of households, as well as government institutions.

NDP is net domestic product, which is calculated as the difference between GDP and depreciation.

Indirect taxes are included in the price of goods and services and are actually government revenues that it receives without using economic resources in the production process. Thus, indirect taxes through increased costs increase prices, but do not create any economic benefits. ND equals the sum of primary incomes of owners of production factors. The structure of income is the most important indicator of the distribution of income of various segments of the population.

Main components of national income:

1. remuneration for work (70-80%, in the Russian Federation officially 45%);

2. income of small producers (non-corporate sector) - these incomes are mixed - they cannot be divided into profits as owners and wages as employees of their own firms (several percent);

3. income from property (interest, joint-stock company profit, rent) – 15-20%.

As a rule, personal income is larger than national income due to transfer payments.

Transfer payments are benefits and subsidies received by the population from the state. These are unemployment benefits, disability benefits, free and discounted medications, subsidies for utility bills, maternity capital, pensions, scholarships, etc.

Disposable personal income- This is income that the population can dispose of at their own discretion. This is personal income minus individual taxes.

This indicator is important for analyzing the standard of living in the country, analyzing the structure of purchasing opportunities of various segments of the population, and studying the effectiveness of government regulation in the social sphere.

Price indices. GDP deflator

The GDP indicator is significantly influenced by changes in the price level. There is a distinction between nominal and real GDP.

Nominal GDP reflects the physical volume of goods and services produced in the current given year prices

Real GDP is nominal GDP adjusted for price changes or expressed in base year prices. The base year is the year from which the measurement begins or with which GDP is compared.

To bring nominal GDP to its real value, two indices are used: consumer price index (CPI) and GDP deflator.

To determine the CPI, the concept of “consumer basket” is used, which includes about 300 items of the most widely used goods.

The difference between the CPI and the GDP deflator is as follows:

The GDP deflator is calculated for a changing set of goods and is Paasche index, and the CPI is calculated for a constant set of goods and is called Laspeyres index;

The GDP deflator shows changes in prices for the entire list of products and services produced in the economy, while the CPI shows price increases only for consumer goods;

The GDP deflator takes into account changes in the structure of goods produced, but the CPI does not;

The GDP deflator shows changes in prices for products produced by national factors, and the CPI takes into account changes in prices for imported goods.

The level of nominal GDP is influenced by two factors: real growth in the production of goods and services and price fluctuations. The GDP deflator makes it possible to obtain the GDP value without taking into account changes in prices for produced goods and services:

A change in the GDP deflator reflects a change in the general price level, i.e., the process of inflation or deflation.

Adjusting nominal GDP using the CPI or GDP deflator makes it possible to make this important indicator comparable across years.

4. Economic growth: essence, types, indicators, factors

The economic growth- this is the development of the national economy in which real GDP increases. This is not a short-term, but a long-term increase and qualitative improvement of GDP and its factors of production.

The essence and significance of economic growth lies in the constant resolution of the main economic problem - the contradiction between limited economic resources and the unlimited needs of people. Economic growth allows you to simultaneously increase available resources, increase current consumption, as well as additional investments in the development of production.

Economic growth is the most important indicator of the development of the national economy.

Economic growth indicators:

· Indicator of the growth rate of real GDP;

· An indicator of the growth rate of real GDP per capita.

where GDPt is the GDP of the current year;

GDPt-1 - GDP of the previous year.

Factors of economic growth:

· increasing the number and improving the quality of labor resources;

· growth in volume and improvement in the qualitative composition of fixed capital;

· improvement of technology and production organization;

· increasing the quantity and quality of natural resources used;

· growth of entrepreneurial abilities in society.

Types of economic growth:

· Extensive economic growth involves an increase in output through the use of additional resources (means of production, labor, additional financial resources).

· Intensive economic growth is associated with an increase in production efficiency and implies an increase in output per unit of resources used.

Intensive economic growth is manifested:

· in using the achievements of GDP, updating production;

· in improving the qualifications of employees;

· improving the quality of products and updating the range.

If the share of real GDP resulting from intensive growth factors exceeds 50%, then the economy as a whole is characterized by a predominantly intensive type of economic growth; if less than 50% - predominantly extensive type of economic growth.

Minimum requirements for economic growth - the rate of economic growth must exceed the rate of population growth.

Questions for self-control

1. Define GDP and GNP. Why is GDP (GNP) the main macroeconomic indicator?

2. What is the difference between nominal and real GDP?

3. Why is the GDP price index called a deflator and not a GDP inflator?

4. What is the relationship between GDP (GNP) and other macroeconomic indicators?

5. What are the main types of economic growth?

6. List the main factors influencing economic growth.

TOPIC 10. Macroeconomic instability: unemployment, inflation, crises

1. Unemployment and its forms

2. Inflation and its types

3. Economic cycles

Unemployment and its forms

The International Labor Organization (ILO) defines an unemployed person as a person who did not have a job during the period under review, was actively looking for a job, and is ready to start working on it.

In accordance with Russian legislation, able-bodied citizens who do not have work and income, are registered with the employment service in order to find a suitable job and are ready to start work are recognized as unemployed.

The labor force is represented by two groups of the population: employed, i.e. participate in the creation of goods, and the unemployed.

The labor force is usually called the economically active population.

Depending on the duration of the period of unemployment, frictional, structural and cyclical unemployment are distinguished.

Frictional unemployment reflects staff turnover associated with a change of place of work, residence, education, and the transition from a low-paid to a higher-paid one. It is voluntary and limited to short periods. In developed countries, as a rule, this is 2-3% EAN.

Structural unemployment arises due to a mismatch between the structure of labor supply and demand. The structurally unemployed cannot immediately get a job without retraining or changing their place of residence. Therefore, structural unemployment is predominantly forced and long-term in nature.

Structural unemployment is associated with technological changes in the economy, as a result of which the level of qualifications of certain categories of the workforce depreciates, with scientific and technological progress, as a result of which the sectoral structure of the national economy changes. To reduce structural unemployment, it is necessary to expand the system of training and retraining of personnel, improve the skills of workers, and effective interaction between employment services and enterprises.

The level of unemployment at full employment equal to the sum of frictional and structural unemployment is called the natural rate of unemployment. The real GDP that is created at the natural rate of unemployment is called potential GDP or the productive potential of the economy. The natural rate of unemployment is the social minimum level that corresponds to the concept of full employment.

Cyclical unemployment arises in connection with a decline in production during economic crises, when the supply of labor exceeds the demand for it. During recessions, there is a reduction in aggregate demand, which causes a reduction in production. The consequence of this is a decrease in employment.

Cyclical unemployment reaches a minimum during a rise and a maximum during a decline in production and can fluctuate from 0 to 10% or more. During the Great Depression of 1929-1933. The unemployment rate in the United States has reached its highest level – 25%. To combat cyclical unemployment, it is necessary to develop special state employment programs (public works programs).

Rice. 17. Unemployment in the Russian Federation

Unemployment indicates underutilization of labor resources and, in general, underutilization of production capabilities. As a result, the country experiences a decline in economic growth and a lag in GDP growth.

American economist Arthur Okun mathematically expressed the relationship between the unemployment rate and the size of the GDP lag. In economic theory, this cause-and-effect relationship is called Okun's law according to which a 1% excess of the actual unemployment rate over the EUB leads to a lag of real GDP by 2.5% from its potential level.

Thus, it is possible to determine the economic losses of society from unemployment.

Inflation and its types

The term "inflation" was first used in North America during Civil War 1861-1865 to denote the process of swelling of paper money circulation. Inflatio translated from Latin means “bloating”. The essence of inflation was an excessive increase in the amount of paper money in circulation compared to the supply of goods.

Depending on what forms inflationary disequilibrium of markets takes, there are open And depressed(hidden) inflation. Open inflation manifests itself in a continued rise in the price level, while hidden inflation manifests itself in an increasing shortage of goods and services. In a market economy, inflation is open (price) in nature, while in a command-administrative economy it is suppressed. Until 1992, inflation in Russia was suppressed.

Depending on the growth rate, open inflation can occur with at different speeds. In this regard, economists distinguish:

· creeping inflation, when price growth is 3-4% per year;

· galloping, when inflationary trends become rapid and the annual price increase is tens and hundreds of percent;

· hyperinflation - prices are rising at astronomical rates, reaching many thousands of percent per year.

Depending on the causes of inflation, economists distinguish between demand-side inflation and supply-side inflation. Demand inflation is generated by an excess of aggregate demand compared to real production. Buyers are directly involved in its formation.

The second form of open inflation is rising costs, which also leads to an increase in the price level. This process is called supply (cost) inflation. The cost-push theory of inflation explains price increases as a result of a double monopoly. . In the market, on the one hand, oligopolistic firms collide, and on the other, oligopolistic trade unions. The initiator of inflation can be either one or the other side, fighting to increase its share in the national income. Under pressure from trade unions, wages increase, which, however, does not reflect the growth in labor productivity, therefore, in order not to reduce profits, entrepreneurs are forced to raise prices. Entrepreneurs can also make a pre-emptive strike: include costs in prices plus a certain percentage to compensate for expected inflation.

Cost-push inflation can be formed based on rising prices for raw materials and energy. Raw materials become more expensive as production and transportation conditions change, prices for imported equipment rise, etc.

Inflation is measured using a price index, which is equal to the ratio between the price of a certain set of goods (basket) in the current year and the price of a similar basket in the base period (as a percentage). The price index determines their general level in relation to the base period.

In addition to the price index, the inflation rate is often used:

2. Inflation rate = (last year price index – current year price index): current year price index) × 100%

Inflation can be measured using the “rule of seventy.” This rule is usually used when it is necessary to determine how long it will take for the price level to double. To do this, you need to divide the number 70 by the annual inflation rate.

3. Number of years required for prices to double = 70: annual inflation rate (%).

Rice. 18. Inflation in the Russian Federation (%)

English economist A.W. Phillips was the first to try to theoretically substantiate the relationship between inflation and unemployment. In 1958, he discovered an empirical relationship between the annual percentage change in nominal wages and the share of unemployed in the total labor force in England during 1861 - 1913. This relationship was illustrated by Phillips as a curve with a negative slope, indicating feedback between the variables under consideration. Subsequently, the curve received the name of its author.

Rice. 19. Phillips curve

Subsequently, other economists in the 50s and 60s of the twentieth century. based on an analysis of later statistical data, they confirmed the conclusions of their A.U. Phillips. According to the Phillips curve, in the period under study, wages grew slowly when unemployment was high and faster when employment was higher. Price stability and low unemployment turned out to be incompatible goals: reducing unemployment was achieved at the cost of accelerating inflation, and reducing inflation led to an increase in the number of unemployed.

Economic cycles

Economic (business) cycle - regular fluctuations in levels of production, employment and income with a frequency of 2-3 years, 10-12 years. During the cycle, there is a significant expansion or contraction of business activity in most sectors of the economy. The most striking manifestations of instability are inflation and unemployment.

The cycle can be divided into two periods: downward (fall in production) and upward (increase in production). Peaks and troughs characterize the turning points of cycles.

Fig.20. Phases economic cycle

Phases of economic cycles:

· the peak is accompanied by the active commissioning of new enterprises and the modernization of old ones, an increase in production volumes, employment, investment, personal income, an increase in demand and prices and ends with a boom - a period of ultra-high employment and overload of production capacity. During a boom, the price level, wage rate and interest rate are very high. At the highest point of the cycle, called the peak, all indicators reach their maximum value.

· The growth of production is replaced by it recession. This indicates the onset of a crisis phase. Production volumes and investments are declining, and unemployment is rising. There is a sharp decrease in profits, the demand for credit is weakening, and interest rates are falling.

· In phase depression The fall in GDP and the increase in unemployment are slowing down significantly, the volume of investment is close to zero.

· After a certain time, the economic system overcomes the lowest point of the cycle, called the trough, and begins revival. Income and employment are starting to rise again. When enterprises bring their production volume to the highest point reached in the previous cycle, then economic climb.

The reasons for fluctuations in business activity are various:

· service life of fixed capital of production inventories (3-4 years); machinery and equipment (8-10 years); buildings and structures (20-25 years).

· unevenness of the scientific and technological revolution. Such oscillations are known as Kondratieff cycles, lasting 50 years;

· fluctuations in the volume of money supply, etc.

Questions for self-control

1. Name the main forms of unemployment.

2. What is the natural rate of unemployment?

3. What are the causes of cyclical unemployment?

4. Name the main types of inflation.

5. Define the business cycle and name its main phases.

6. What are the main reasons for the cyclical development of the economy?

TOPIC 11. Macroeconomic equilibrium:

1. Model “aggregate demand and aggregate supply”

2. Consumption and savings

3. Investments

4. The “income-expenses” model in Keynesian theory

1. Model “aggregate demand and aggregate supply”

Aggregate demand (AD) is the real GDP that consumers are willing to purchase at any given price level. The AD curve shows the quantity of goods and services that buyers are willing to purchase at possible price levels. It shows the inverse relationship between the price level and real GDP.

· The effect of import purchases - an increase in the price level for domestic goods compared to prices abroad leads to an increase in demand for imported goods and a reduction in exports, i.e. to a decrease in net exports. And vice versa.

Non-price factors of aggregate demand:

· Changes in consumer spending;

· Changes in investment expenses related to interest rates, business taxes, technology.

· Changes in government spending

· Changes in net export expenditures associated with the national income of foreign countries, major events in world politics, and exchange rate fluctuations.

Rice. 22. Change in aggregate demand

The increase in aggregate demand is graphically illustrated by a shift of the AD curve to the right and upward as a result of an increase in consumer and investment spending, government purchases of goods and services, and spending on net exports. A decrease in aggregate demand graphically means a shift of the AD curve to the left and down if the indicated determinants tend to decrease.

Aggregate supply is the actual output offered by producers within a national economy at each possible price level.

The aggregate supply curve reflects the direct relationship between the level and the level of real output. The AS curve consists of three segments: horizontal (Keynesian), intermediate (ascending) and vertical (classical).

The Keynesian segment is characterized by underemployment. The economy is characterized by significant unemployment and underutilization of production capacity. The growth of national output is not accompanied by an increase in the price level.

The intermediate segment of the aggregate supply curve corresponds to real national production volumes close to full employment. An increase in production volume is accompanied by an increase in the price level.

The classic (vertical) segment of the AS curve characterizes a full employment economy. Firms can increase their own production only through the redistribution of economic resources, offering, for example, higher wages. Overall, national output will remain unchanged. Thus, on the classic segment of the aggregate supply curve, only the price level can change.

Rice. 23. Aggregate supply curve

In addition to the general price level, aggregate supply is influenced by numerous non-price factors (determinants):

· prices for basic economic resources;

· resource productivity;

· applied technologies;

· level of taxation and degree of state regulation of the economy.

Rice. 24. Change in aggregate supply

The increase in aggregate supply is graphically illustrated by the shift of the AS curve to the right and down as a result of an increase in the productivity of resources, a decrease in their prices, and the introduction of high technology, reducing the tax burden on producers and other non-price factors.

A decrease in aggregate supply graphically means a shift of the AS curve to the left and up with the opposite effect of the indicated determinants.

Graphically, macroeconomic equilibrium means the intersection of the AD and AS curves at a point whose parameters are the parameters of macroeconomic equilibrium (equilibrium price level and equilibrium production volume).

Macroeconomic equilibrium on the horizontal (Keynesian) segment of the aggregate supply curve characterizes an economy in a state of economic recession, when the dynamics of prices for produced goods and services does not have any impact on the real volume of production. Deviation from equilibrium is manifested in changes in real GDP at a relatively constant price level.

Rice. 25. Macroeconomic equilibrium in the “AD-AS” model

Equilibrium in the national market, corresponding to the intermediate segment of the aggregate supply curve, characterizes an economy close to full employment, when an increase in output becomes possible only as a result of an increase in the price level, and a reduction in output as a result of a decrease in the price level.

Macroeconomic equilibrium on the vertical (classical) segment of the aggregate supply curve characterizes a full-employment economy and corresponds to the potential volume of production, when only the price level can change.

Consumption and savings

Consumer spending is the most significant component of aggregate demand. Consumption typically accounts for more than half of total demand.

Consumer behavior depends on many factors, the main one being income. Consumption is the portion of income that is used to purchase goods and services. The consumption structure is individual, but there are general priorities that are associated with expenses for food, clothing, housing, medicines, transportation services, etc. As family income grows, expenses for durable goods, recreation, etc. increase.

The size and dynamics of consumption and savings in economics are analyzed using the consumption functions and the savings function.

The consumption (propensity to consume) graph shows the direct dependence of consumption (C) on the amount of disposable income (DI). Each point on the bisector characterizes the amount of possible income that is completely consumed.

The consumption graph is a straight line that intersects the bisector. The intersection point characterizes the amount of threshold income that is completely spent. Below the income threshold, consumer spending exceeds available income (“living on debt”). When income exceeds the threshold value, it becomes possible to make savings.

Disposable income has two main uses - consumption and savings. Savings can be defined as the non-consumable part of income, deferred consumption, future consumption. Thus, savings are the portion of disposable income that is not consumed.

Rice. 26. Graphs of propensity to consume and save

The savings schedule (S) is a derivative of the consumption schedule. The point where the savings graph intersects the income axis corresponds to zero savings. The points on the savings graph that are to the left of the zero savings point mean negative savings (living on debt). The dots on the left represent positive savings.

Average propensity to consume( average propensity to consume - APC) is the portion of disposable income that goes towards consumption. APC is determined by the formula:

With a change in the amount of disposable income, the ratio in consumer spending and the amount of savings obviously changes, i.e. the propensity to consume and save changes.

Marginal propensity to consume( marginal to consume – MPC) – shows the share of the increase in income used for consumption.

Marginal propensity to save( marginal to save - MPS) - shows the share of income growth used for savings.

Investments

In a broad sense, investments are monetary investments in any assets for the purpose of generating income. There are:

· real investments (capital investments) are investments in tangible assets (land, equipment, structures, inventories, housing construction, etc.));

· financial investments are investments in securities (for example, in the purchase of shares, bonds, etc.). IN given value investments are used in the theory of finance.

In economic theory, the term “investment” refers to real investment. Unlike consumer spending, which is stable, investment spending is volatile and dynamic. During periods of economic crises, investments in the purchase of equipment, inventories, industrial and housing construction are first significantly reduced.

The main factors influencing the level of investment are:

· expected rate of net profit (profitability);

· interest rate.

The interest rate is the price paid for the use of money. In the case under consideration, monetary capital is necessary to purchase real capital as an economic resource.

For making investment decisions, the real rather than the nominal interest rate plays a decisive role. The real interest rate is measured in constant prices, i.e. at prices adjusted for inflation. The nominal interest rate is measured in current prices.

Investment is profitable if the expected rate of net profit exceeds the real interest rate. And vice versa.

The level of the interest rate is of fundamental importance even in the case of investing using your own funds (reinvesting profits). In this case, the firm incurs an opportunity cost equal to the interest rate, which is the income that the firm gives up in order to make the investment.

Investment demand reflects the dependence of the volume of investment on the level of the real interest rate, which the investor compares with the expected rate of net profit. The demand curve for investment shows an inverse relationship between the interest rate and the volume of investment. Factors influencing the level of investment:

· business taxes;

· changes in technology;

· expected profits of firms;

· expenses for the purchase, maintenance and operation of investment goods.

4. The “income-expenses” model in Keynesian theory

In accordance with the Keynesian direction in economic theory, it is assumed that the engine of economic development is aggregate demand. It is he who determines the aggregate supply. It is derived from aggregate demand and focuses on expected aggregate demand.

A graph illustrating the equilibrium of an economic system as the point of intersection of planned total expenditures and income (GDP) is called the “Keynesian cross”. The "Keynesian cross" is an interpretation of the aggregate demand-aggregate supply model under conditions of rigid pricing.

The classical understanding of economics is based on the assertion that flexible pricing dominates and the price level can take any value. The Keynesian model describes the economy in the short run, which is characterized by sticky prices.

Price rigidity in the economy means that balancing supply and demand occurs not due to changes in the price level, but due to the fact that sales volumes and changes in inventory levels provide firms with information about what and how much customers want to have. The AD-AS model, therefore, can only indicate the equilibrium output, but cannot show how this equilibrium is achieved.

Therefore, to describe equilibrium in an economy with fixed prices, it is necessary to construct a graph reflecting the dependence of the magnitude of demand and supply on the volume of national income. In Fig. 27, the horizontal axis reflects national income Y, which coincides in value with the volume of national output, and the vertical axis shows the volume of aggregate demand.

Since aggregate demand equals the sum of the demand for consumer and investment goods, it can be represented graphically by summing the consumption and investment schedules at each income level.

The Keynesian cross shows how planned aggregate spending (consumer spending, investment spending, government purchases and net exports affect output). An economic system is in equilibrium only when planned total expenditures equal income (GNP).

Thus, an analysis of the “Keynesian cross” shows that the general equilibrium in the economy, established in the described way, does not necessarily correspond to a level of national income that allows for full employment. The equilibrium volume of national income in the Keynesian model is determined by people's propensity to consume, save and invest. With a low propensity to consume and invest, the equilibrium volume of production may be lower than potential (achieved with full use of resources).

Great Depression 1929-1933 was convincing evidence of the correctness of the theoretical conclusions of J. Keynes. All hopes for the ability of a market economy to cope with the global crisis that hit all highly developed countries turned out to be in vain. The economy continued to function at low levels of employment, showing no signs of recovery. According to John Keynes, only the state could bring it out of protracted stagnation. Only an increase in government spending (G) can compensate for the shortfall in aggregate demand resulting from low consumer spending and the lack of incentives for private firms to invest, and thus ensure economic equilibrium at full employment of resources. Y3 – total income corresponding to the national production volume at full employment of resources.

Rice. 27. Income-expenditure model (Keynesian cross)

Any change in expenses that make up aggregate demand (consumer, investment, government) triggers a multiplier effect, expressed in the excess of the increment in total income compared to the change in aggregate demand. At the same time, income increases turn out to be more significant than the changes in private investment and government that caused them.

The Keynesian multiplier shows how the increase in investment (public and private) affects the increase in output and income. The multiplier is a number that shows how many times the initial increase in investment must be increased to calculate the resulting increase in national income. In other words, the multiplier is the ratio of the change in the equilibrium level of national income (GDP) to the initial change in the level of expenditure that caused it.

Let’s assume that investments in the economy increased by 10 billion rubles. If, thanks to this, the country’s total (national) income increases by 20 billion rubles, then in such an economy the multiplier is equal to 2.

From this formula it follows that the greater the marginal propensity to consume (the smaller the marginal propensity to save), the greater the multiplier. This means that the greater the final increase in national income due to increased investment.

Questions for self-control

1. What are the main reasons for the downward sloping nature of the aggregate demand curve?

2. Describe the features of the aggregate supply curve.

3. What is the ratchet effect?

4. What does the “aggregate demand - aggregate supply” model explain?

5. What is the relationship between the propensity to consume and the propensity to save? How to show this relationship graphically?

6. What is the difference between real and financial investments?

7. Why is the graphical model of the Keynesian theory of macroeconomic equilibrium called the “Keynesian cross”?

8. Describe the multiplier effect.

Related information.

Personal disposable income is personal income less personal taxes (personal income taxes, property taxes, and inheritance taxes). After-tax income is income that the recipients use as they wish. This income ultimately goes towards consumption and savings.

Most of the disposable income is spent on consumer spending. Personal consumption expenditures include total household expenditures on goods and services, excluding the purchase of houses. The other part is used to pay interest. And finally, the third part goes to increase personal savings.

Personal income

Adjustments to savings, primarily related to shortcomings in the assessment of savings in cash, necessitate adjustments to official estimates of total personal income. Due to the fact that the development of the shadow economy in last years makes it difficult to obtain reliable statistical data on income, Goskomstat uses the balance sheet method to estimate them, i.e. equates them to the total expenditures of the population. Expenses include expenses for goods and services, taxes, and current savings. If we strictly adhere to this methodology, then out of the total purchase of currency by the population, it is necessary to take into account in expenses only the net increase in cash currency in the hands of the population and the expenses of Russian tourists abroad. Sales of currency by the public should be excluded from savings (and from income) since they represent a reduction in gross savings. Currency exported by shuttles should also be excluded from the assessment of savings. This amount could be included in the amount of consumer spending and, therefore, in the amount of income, if Goskomstat did not include an assessment of unorganized imports in the amount of retail trade turnover. Thus, data on personal income of the population must be reduced by approximately 16-18%.

Disposable personal income is the total income available for immediate use by households (DPI).

Disposable personal income is based on national income:

RLD = ND - corporate profits + dividends on shares of individuals - taxes (direct) + transfer payments (social payments).

Corporate profits, being part of the national income, are divided into three parts:

• - taxes on corporate profits that go to the state, therefore, this part of corporate profits cannot be included in the RLD;
• - retained earnings - part of the profits of corporations that remains at their disposal and is intended for expanding production, that is, for increasing investment;
• - the remaining profit can be paid to shareholders in the form of dividends. Shares can be owned by individuals (households) and firms. Disposable personal income includes dividends received by individuals only.

If we ignore the existence of the state, and also ignore the fact that corporations pay only part of their profits to households in the form of dividends, then there is no difference between national income and disposable personal income.

Personal consumption expenditures (in the system of national accounts) are household expenditures on the purchase of consumer goods (excluding the purchase of real estate).

Interest payments represent mainly payments on consumer credit(a very small share in the RLD, so we will neglect them in further analysis).

Personal savings (S in the System of National Accounts) is the portion of personal disposable income that people use to accumulate (increase wealth). Forms of personal savings: increasing a bank account, purchasing securities, purchasing real estate, paying off old debts. The personal savings rate is the share of personal savings in the RLD. (Savings are not taken into account when calculating GDP, either by income or expenditure!).

Having gained an understanding of the calculation of the main macroeconomic aggregates and the relationships between them, you can move on to macroeconomic analysis itself. The main analytical tool of macroeconomic analysis is macroeconomic models.

Additional factors related to calculating income and savings.

All of the above transformations were carried out within the framework of the concept of personal income adopted by the State Statistics Committee. However, it is also necessary to assess the impact on the savings rate of several additional factors outside this framework. One of these factors is delays in payment of wages. They represent a certain form of forced savings, a kind of loan to enterprises and the state. When assessing personal income using the balance sheet method, the increase in salary arrears should be added to savings and, therefore, income, and debt repayments should be subtracted.

Another type of income and savings can be considered imputed income from changes in the exchange rate. As the exchange rate of most hard currencies rises, the ruble value of cash savings increases. Since the currency purchased a year ago can be sold today at a higher price, this difference should be considered income similar to interest income and added to savings. Given the general insignificance of these two types of savings, several periods can be identified when neglecting them could distort the overall picture. Wage delays were noticeable in 1994 and 1996, and exchange rate gains were noticeable in early 1995.

IN Lately in publications Central Bank Two more new indicators related to household savings have appeared. This is the volume of loans to the population and the ruble valuation of foreign currency deposits individuals. The contribution of the increase in loans to the total amount of personal income for 1997 did not exceed 0.4% and was unlikely to affect the overall dynamics of savings. The volume of foreign currency deposits of the population, according to data at the beginning of 1998, is comparable to ruble deposits in commercial banks. According to our estimates, the increase in these deposits over the past year was less than 1% of the amount of personal income, but ignoring them in the future can lead to significant distortions in assessing the dynamics of income and savings of the population.