Macro 2b
Prob set 2, due 2/14, merg 466
Ch3 #1,4,6,7,8,13
Next week ch 6

Determination of output = income
Division of income between capital and labor
Recap

Textbook says labor share of income is 0.7, alpha approx 0.3
Ball says labor share has gone done that lead to increase of income inequality

H = human capital that leads to production.

* Constant return to scale

, h = return to human capital

90 10 differential as a measure of income inequality. 90th to 10th percentile earns Since 1980s we have an increase in income inequality Caused by skill-biased technical change, has gone. Production function has changed to favor skill Extra income from one year of college education case study: In 1980: 7.6%
2005 12.9% more Labor income includes compensation nowadays. Determination of output = income Division of income between capital and labor and human capital GDP - Division of spending (assume closed economy) Yd = disposable income , taxes are fixed , 0<C<1 marginal propensity to consume Y = C + I + G

I=I(r), real interst rate , I’ < 0 (assume exogenous government spending) -you have exogenous and endogenous variables
- example of endogenous (Y and r) Independent variable that affects a model without being affected by it, and whose qualitative characteristics and method
-Government spending is also fixed

Y = income = output = spending
Output
What ensures that total output = total