The Classical Model builds on the principles developed in microeconomics to explain how equilibrium production and employment might be determined from profit maximizing and utility maximizing behavior.
From the system of dynamic model of the economy we can see that, as the production increased, the income will increase. And then both saving and consumption will increase. From this point, there are two ways to go. More consumption will decrease the production. But more saving will cause more investment and raise the technology, more investment will increase the capital, the increasing of capital will increase the production, in this way our economy will growth.
In a short way, after the ...view middle of the document...
3．Net Domestic Product = GDP-depreciation = GDP-(gross investment-net investment) = 14000-(5000-1500）=10500
NDP is the sum total of money value of final goods and services produced in a country on an accounting year excluding depreciation cost. So this might tell the country should spend about 10500 to maintain the GDP.
Personal Income = NDP-indirect taxes+ transfer payment = NDP +transfer payment = 10500+300 = 10800
This tells you people in this country might have an average income about 10800, but not including the taxes.
Disposable Income = personal income-personal taxes = 10800-600 = 10200
The amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.
4. Y grows by .028% per year. And 4E-25 is intercept.
And the shape of this model will be upward curve.
5. The cobb-Douglas production function used to represent the relationship of an output to inputs. When α+β=1 is constant return of scale, when α+β>1 is increase return of scale, when α+β<1 is decrease return of scale. Solow growth model is talking about production, too. And Solow’s model has saving and technology involved.
A=.0008, A represents the efficiency of production.
α=.94 that means 1% increase in labor causes output to increase .94%.
β=.51 that means 1% increase in capital causes output to increase .51%.
α+β=.94+.51=1.45>1 that means it is increase return of scale.
6. As we can see from the graph, unemployment rate was every unstable, is always down to the bottom right after it reach the peak. The highest point in the history is 10.9 percent in 1982. And the lowest point in the history is only 2.5 percent in 1953. The interest thing about this graph is, before 1960, it only takes about 2 or 3 years for the unemployment rate to get back where it was from the peak. But after 1960, it takes longer and longer to get back a lower ratio after each time it reach the peak. There are three types of unemployment rate, frictional unemployment, structural unemployment and the cyclical unemployment. By just looking at this graph, we really don’t have too much to say about frictional and structural unemployment, but we can easily tell the cyclical unemployment rate. Cyclical unemployment is unemployment due to macroeconomic fluctuations—specifically, unemployment which occurs due to a drop off in aggregate demand. During recessions, unemployment rises as demand for the products of business falls off. During recoveries, this kind of unemployment should decrease. All the recessions were marked by gray lines in the graph and pretty much all of them are peaks. And after recession, the unemployment rate went very fast during the recoveries.
In Okun's original statement of his law, a 3% increase in output corresponds to a 1% decline in the rate...