Chapter 8: Introduction to Aggregate Supply
This lecture covers Chapter 8 of Mitchell, Wray, Watts MMT textbook on the Aggregate Supply function. The key feature is the Markup Pricing model, which is radically different from the standard Cobb Douglass type supply function with Supply and Demand theory of price determination. The chapter goes through the main differences.
https://youtu.be/SszP1Crpe3k
Final Exam Questions
1. Explain the MMT Aggregate Supply Function and the KEY points of difference between this and the neoclassical aggregate supply function.
2. Explain the effects on the real wage of (a) labor productivity and (b) markup.
3. Explain how the Cobb-Douglass function leads to Labor and Capital receiving marginal product, but the Leontief Fixed Proportion production leads to share of capital and labor being determined by the relative power of the two (laborers and capitalists).
Student answers by Fatima Patel in ch 8.docx attached below. The first answer is more or less correct.
Second answer -- needs more work -- should add the formula given in the textbook, and explain it. The formula relates markup to productivity and wage. THEN the discussion should be there.
Third answer is not correct. You need to look at and compute marginal products for Cobb Douglass and show that they add up to the total revenus. BUT in Leontief, the full revenue is the marginal product for BOTH factors so the sum of the marginal products is double the marginal revenue. So the marginal revenue cannot be shared according to the marginal product, because there is not enough. You also need to explain how the competitive market leads to factors receiving marginal revenue and how this argument breaks down in case of Leontief but works in case of Cobb Douglass.
MMT08 Aggregate Supply Based on Markup Pricing — Video Lecture 21 of Adv Macro course at PIDE