Tiêu đề Unit 5 Macroeconomics ✅

UNIT-V MACRO THEORY OF DISTRIBUTION
Macro Theory of the Distribution explains that how the total shares of the various categories of income are determined. This is also called the aggregative Theory of income Distribution. The micro theory of distribution deals with the analysis of the determination of the relative price of the factors, Macro theory of distribution is concerned with the analysis of the determination of relative shares of the factors in the total national income. Therefore, macro theory of distribution is also known as theory of distributive shares. MEANING OF MACRO THEORY OF DISTRIBUTION
i. The economy is divided into two sectors: a. Agriculture sector and b. industrial sector. However, Ricardo has more emphasized on agriculture as the forces working in this sector determine the distributive shares in the industry. ii. Ricardo has divided the total income into three shares: a. wages b. rents and c. profits. iii.The law of diminishing returns operates in the agriculture sector. iv. Malthusian law of population is also assumed to be applicable. Population will increase or decrease depending on whether actual wage is greater or smaller than subsistence wage. v. Profit is necessary incentive for capital accumulation. vi. Supply of land is inelastic, i.e. fixed. Ricardian or Classical Theory of income Distribution Assumptions:
Explanation of the theory The basic proposition of this theory is that at any time there is a given stock of wheat to feed the workers. The stock of wheat defines the wage fund. The level of employment is, therefore, determined not by the wage rate and the marginal productivity but by the wage fund. which is determined by the availability of capital stock (wage fund). In the short-run the actual wage rate is wage fund divided by the no of workers and may be greater or less than subsistence level. In the long-run, however, the wage rate fall down to the subsistence level. According to Ricardo, the share of national output is to be distributed as: rents, wages and profit. His theory is based on two separate principles: a. Marginal principle: It explains the determination of rent. b. Surplus principle: It explains the determination of wages and profits. First of all, we examine the determination process of wages, rents and profits in Ricardian income distribution theory: Determination of wage rate: Wage fund Actual wage fund = Number of Labor