Transcript 投影片 1 - NCCU

IMBA Macroeconomics IV
Jack Wu
Short-Run Economic Fluctuation
 Economic activity fluctuates from year to year.
 A recession is a period of declining real incomes, and
rising unemployment.
 A depression is a severe recession.
• Fluctuations in the economy are often
called the business cycle.
Basic Model
 Two variables are used to develop a model to analyze
the short-run fluctuations.
 The economy’s output of goods and services measured
by real GDP.
 The overall price level measured by the CPI or the GDP
deflator.
 The Basic Model of Aggregate Demand and Aggregate
Supply
 Economist use the model of aggregate demand and
aggregate supply to explain short-run fluctuations in
economic activity around its long-run trend.
Aggregate Demand and Supply
Curves
 The aggregate-demand curve shows the quantity of
goods and services that households, firms, and the
government want to buy at each price level.
 The aggregate-supply curve shows the quantity of goods
and services that firms choose to produce and sell at
each price level.
Aggregate Demand and Aggregate Supply
Price
Level
Aggregate
supply
Equilibrium
price level
Aggregate
demand
0
Equilibrium
output
Quantity of
Output
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Aggregate Demand Curve
 The four components of GDP (Y) contribute to the
aggregate demand for goods and services.
Y = C + I + G + NX
The Aggregate-Demand Curve...
Price
Level
P
P2
1. A decrease
in the price
level . . .
Aggregate
demand
0
Y
Y2
Quantity of
Output
2. . . . increases the quantity of
goods and services demanded.
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Shifts
 Shifts arising from
 Consumption
 Investment
 Government Purchases
 Net Exports

Demand Curve Shifts
Price
Level
P1
D2
Aggregate
demand, D1
0
Y1
Y2
Quantity of
Output
Aggregate Supply Curve
 In the long run, the aggregate-supply curve is vertical.
 In the short run, the aggregate-supply curve is upward
sloping.
The Long-Run Aggregate-Supply Curve
Price
Level
Long-run
aggregate
supply
P
P2
2. . . . does not affect
the quantity of goods
and services supplied
in the long run.
1. A change
in the price
level . . .
0
Natural rate
of output
Quantity of
Output
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Long-Run Aggregate Supply Curve
 The Long-Run Aggregate-Supply Curve
 The long-run aggregate-supply curve is vertical at the
natural rate of output.
 This level of production is also referred to as potential
output or full-employment output.
 Any change in the economy that alters the natural rate
of output shifts the long-run aggregate-supply curve.
 The shifts may be categorized according to the various
factors in the classical model that affect output.
Shifts
 Shifts arising
 Labor
 Capital
 Natural Resources
 Technological Knowledge
Long-Run Growth and Inflation
2. . . . and growth in the
money supply shifts
aggregate demand . . .
Long-run
aggregate
supply,
LRAS 1980 LRAS 1990 LRAS 2000
Price
Level
1. In the long run,
technological
progress shifts
long-run aggregate
supply . . .
P 2000
4. . . . and
ongoing inflation.
P 1990
Aggregate
Demand, AD2000
P 1980
AD1990
AD1980
0
Y 1980
Y 1990
Quantity of
Output
3. . . . leading to growth
in output . . .
Y 2000
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Short-Run Aggregate Supply Curve
 Short-run fluctuations in output and price level
should be viewed as deviations from the continuing
long-run trends.
 In the short run, an increase in the overall level of
prices in the economy tends to raise the quantity of
goods and services supplied.
 A decrease in the level of prices tends to reduce the
quantity of goods and services supplied.
The Short-Run Aggregate-Supply Curve
Price
Level
Short-run
aggregate
supply
P
P2
2. . . . reduces the quantity
of goods and services
supplied in the short run.
1. A decrease
in the price
level . . .
0
Y2
Y
Quantity of
Output
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The Long-Run Equilibrium
Price
Level
Long-run
aggregate
supply
Equilibrium
price
Short-run
aggregate
supply
A
Aggregate
demand
0
Natural rate
of output
Quantity of
Output
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Two Causes of Economic
Fluctuation
 Shifts in Aggregate Demand
 In the short run, shifts in aggregate demand cause fluctuations in
the economy’s output of goods and services.
 In the long run, shifts in aggregate demand affect the overall price
level but do not affect output.
 An Adverse Shift in Aggregate Supply
 A decrease in one of the determinants of aggregate supply shifts the
curve to the left:



Output falls below the natural rate of employment.
Unemployment rises.
The price level rises
A Contraction in Aggregate Demand
2. . . . causes output to fall in the short run . . .
Price
Level
Long-run
aggregate
supply
Short-run aggregate
supply, AS
AS2
3. . . . but over
time, the short-run
aggregate-supply
curve shifts . . .
A
P
B
P2
P3
1. A decrease in
aggregate demand . . .
C
Aggregate
demand, AD
AD2
0
Y2
Y
4. . . . and output returns
to its natural rate.
Quantity of
Output
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An Adverse Shift in Aggregate Supply
1. An adverse shift in the shortrun aggregate-supply curve . . .
Price
Level
Long-run
aggregate
supply
AS2
Short-run
aggregate
supply, AS
B
P2
A
P
3. . . . and
the price
level to rise.
Aggregate demand
0
2. . . . causes output to fall . . .
Y2
Y
Quantity of
Output
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Stagflation
 Stagflation
 Adverse shifts in aggregate supply cause stagflation—a
period of recession and inflation.


Output falls and prices rise.
Policymakers who can influence aggregate demand cannot
offset both of these adverse effects simultaneously.
Policy Responses to Recession
 Policy Responses to Recession
 Policymakers may respond to a recession in one of the
following ways:


Do nothing and wait for prices and wages to adjust.
Take action to increase aggregate demand by using monetary
and fiscal policy.
Accommodating an Adverse Shift in Aggregate Supply
1. When short-run aggregate
supply falls . . .
Price
Level
Long-run
aggregate
supply
P3
C
P2
3. . . . which P
causes the
price level
to rise
further . . .
0
A
4. . . . but keeps output
at its natural rate.
Natural rate
of output
Short-run
aggregate
supply, AS
AS2
2. . . . policymakers can
accommodate the shift
by expanding aggregate
demand . . .
AD2
Aggregate demand, AD
Quantity of
Output
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Equilibrium in the Money Market
Interest
Rate
Money
supply
r1
Equilibrium
interest
rate
r2
0
Money
demand
Md
Quantity fixed
by the Fed
M2d
Quantity of
Money
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Price and Quantity Demanded
 The price level is one determinant of the quantity of money




demanded.
A higher price level increases the quantity of money demanded for
any given interest rate.
Higher money demand leads to a higher interest rate.
The quantity of goods and services demanded falls.
The end result of this analysis is a negative relationship between the
price level and the quantity of goods and services demanded.
The Money Market and the Slope of the AggregateDemand Curve
(a) The Money Market
Interest
Rate
(b) The Aggregate-Demand Curve
Price
Level
Money
supply
2. . . . increases the
demand for money . . .
P2
r2
Money demand at
price level P2 , MD2
r
3. . . .
which
increases
the
equilibrium 0
interest
rate . . .
Money demand at
price level P , MD
Quantity fixed
by the Fed
Quantity
of Money
1. An
P
increase
in the
price
level . . . 0
Aggregate
demand
Y2
Y
Quantity
of Output
4. . . . which in turn reduces the quantity
of goods and services demanded.
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Fed’s Monetary Injection
 The Fed can shift the aggregate demand curve when it
changes monetary policy.
 An increase in the money supply shifts the money
supply curve to the right.
 Without a change in the money demand curve, the
interest rate falls.
 Falling interest rates increase the quantity of goods
and services demanded.
A Monetary Injection
(b) The Aggregate-Demand Curve
(a) The Money Market
Interest
Rate
r
2. . . . the
equilibrium
interest rate
falls . . .
Money
supply,
MS
Price
Level
MS2
1. When the Fed
increases the
money supply . . .
P
r2
AD2
Money demand
at price level P
0
Quantity
of Money
Aggregate
demand, AD
0
Y
Y
Quantity
of Output
3. . . . which increases the quantity of goods
and services demanded at a given price level.
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Impacts of Monetary Policy on
Aggregate Demand
 When the Fed increases the money supply, it lowers
the interest rate and increases the quantity of goods
and services demanded at any given price level,
shifting aggregate-demand to the right.
 When the Fed contracts the money supply, it raises the
interest rate and reduces the quantity of goods and
services demanded at any given price level, shifting
aggregate-demand to the left.
Forms of Monetary Policy
 Monetary policy can be described either in terms of
the money supply or in terms of the interest rate.
 Changes in monetary policy can be viewed either in
terms of a changing target for the interest rate or in
terms of a change in the money supply.
 A target for the federal funds rate affects the money
market equilibrium, which influences aggregate
demand.
Fiscal Policy
 Fiscal policy refers to the government’s choices
regarding the overall level of government purchases or
taxes.
 Fiscal policy influences saving, investment, and
growth in the long run.
 In the short run, fiscal policy primarily affects the
aggregate demand.
Fiscal Policy: continued
 When policymakers change the money supply or taxes,
the effect on aggregate demand is indirect—through
the spending decisions of firms or households.
 When the government alters its own purchases of
goods or services, it shifts the aggregate-demand curve
directly.
Two Macroeconomic Effects
 There are two macroeconomic effects from the change
in government purchases:
 The multiplier effect
 The crowding-out effect
The Multiplier Effect
Price
Level
2. . . . but the multiplier
effect can amplify the
shift in aggregate
demand.
$20 billion
AD3
AD2
Aggregate demand, AD1
0
1. An increase in government purchases
of $20 billion initially increases aggregate
demand by $20 billion . . .
Quantity of
Output
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The Crowding-Out Effect
(a) The Money Market
Interest
Rate
(b) The Shift in Aggregate Demand
Price
Level
Money
supply
2. . . . the increase in
spending increases
money demand . . .
$20 billion
4. . . . which in turn
partly offsets the
initial increase in
aggregate demand.
r2
3. . . . which
increases
the
equilibrium
interest
rate . . .
AD2
r
AD3
MD2
Aggregate demand, AD1
Money demand, MD
0
Quantity fixed
by the Fed
Quantity
of Money
0
1. When an increase in government
purchases increases aggregate
demand . . .
Quantity
of Output
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