Documente Academic
Documente Profesional
Documente Cultură
Chapter 33 & 34
By: Khaira Abdillah
Source: Cengage Learning
Chapter 33
• What are economic fluctuations? What are their characteristics?
• How does the model of aggregate demand and aggregate supply
explain economic fluctuations?
• Why does the Aggregate-Demand curve slope downward? What
shifts the AD curve?
• What is the slope of the Aggregate-Supply curve in the short run? In
the long run? What shifts the AS curve(s)?
Three Facts About Economic Fluctuations
FACT
FACT 1:
1: Economic
Economic fluctuations
fluctuations are
are
irregular
irregular and
and unpredictable.
unpredictable.
U.S.
U.S. real
real GDP,
GDP,
billions
billions of
of 2000
2000 dollars
dollars
The
The shaded
shaded
bars
bars are
are
recessions
recessions
4
Three Facts About Economic Fluctuations
FACT
FACT 2:
2: Most
Most macroeconomic
macroeconomic
quantities
quantities fluctuate
fluctuate together.
together.
Investment
Investment spending,
spending,
billions
billions of
of 2000
2000 dollars
dollars
When
When the the economy
economy is is in
in
recession,
recession, YY falls,
falls, C C
falls,
falls, Profits
Profits fall,
fall, TT falls
falls
(T-G<0)
(T-G<0)
5
Three Facts About Economic Fluctuations
FACT
FACT 3:
3: As
As output
output falls,
falls,
unemployment
unemployment rises.
rises.
Unemployment
Unemployment rate,
rate,
percent
percent of
of labor
labor force
force
firms
firmscut
cutback
back
on
onproduction,
production,
they
theydon’t
don’t
need
needas asmany
many
workers.
workers.
6
Short Run Fluctuation
• In the short run, GDP fluctuates around its trend.
• Recessions: periods of falling real incomes
and rising unemployment
• Depressions: severe recessions (very rare)
• Short-run economic fluctuations are often called business cycles.
Tools to study Economic
Fluctuations
• Most economists use the model of aggregate demand and
aggregate supply to study fluctuations.
• This model differs from the classical economic theories economists
use to explain the long run.
*Recap Classical Economics
• The previous chapters are based on the ideas of classical economics,
especially:
• The Classical Dichotomy, the separation of variables into two groups:
• Real – quantities, relative prices
• Nominal – measured in terms of money
P
The price
“Aggregate
level
Demand” SRAS
The model “Short-Run
determines the P Aggregate
1
eq’m price level Supply”
Y = C + I + G + NX P
Assume G fixed
by govt policy. P2
To understand
the slope of AD,
must determine P1
how a change in P AD
affects C, I, and NX.
Y
Y2 Y1
Suppose P rises.
• The dollars people hold able to buy fewer g&s,
so real wealth is lower.
• People feel poorer.
Result: C falls.
Interest Rate Effects
Recall that
(P & I)
Y = C + I + G + NX
Assume G fixed by govt policy.
Suppose P rises.
• Buying g&s requires more dollars.
• To get these dollars, people sell bonds or other assets.
• This drives up interest rates.
(Pbonds >< i, when Supply of bonds increase, Pbonds fall and i rises)
Result: I falls.
(Recall, I depends negatively on interest rates.)
Exchange Rate Effects (P
Recall that
& NX)
Y = C + I + G + NX
Assume G fixed by govt policy.
Suppose P rises.
• Domestic interest rates rise (the interest-rate effect).
• Foreign investors desire more Domestic bonds (Higher Demand for Domestic
Bonds).
• Higher demand for Domestic Currency in foreign exchange market.
• Domestic exchange rate appreciates.
• Domestic exports more expensive to people abroad, imports cheaper to domestic
residents. (X falls, M rises)
Result: NX falls.
The Slope of the AD Curve:
Summary
An increase in P P
reduces the quantity
of g&s demanded
P2
because:
the wealth effect
(C falls)
P1
the interest-rate
AD
effect (I falls)
the exchange-rate Y
Y2 Y1
effect (NX falls)
Example:
A stock market boom makes AD2
households feel wealthier, C rises, AD1
the AD curve shifts right. Y
Y1 Y2
Y
YN Y’N
Y = YN + a (P – PE)
Output Expected
price level
Natural rate
of output
a > 0,
measures Actual
(long-run) price level
how much Y
responds to
unexpected
changes in P
AGGREGATE DEMAND AND AGGREGATE SUPPLY 42
What the 3 Theories Have in
Common:
YY == YYNN ++ aa(P
(P –– PPEE))
P
SRAS
When P > PE
the expected
PE
price level
When P < PE
Y
YN
Y < YN Y > YN
AGGREGATE DEMAND AND AGGREGATE SUPPLY 43
SRAS and LRAS
• The imperfections in these theories are temporary. Over time,
• sticky wages and prices become flexible
• misperceptions are corrected
• In the LR,
• PE = P
• AS curve is vertical
SRAS and LRAS
YY == YYNN ++ aa(P
(P –– PPEE))
P LRAS
SRAS
In the long run,
PE = P
PE
and
Y = YN.
Y
YN
AGGREGATE DEMAND AND AGGREGATE SUPPLY 45
The Long-Run Equilibrium
In the long-run P LRAS
equilibrium,
SRAS
PE = P,
Y = YN ,
PE
and unemployment is
at its natural rate.
AD
Y
YN
Y
YN
1973-75 1978-80
• Next:
A supply-demand model that helps explain the interest-rate effect and
how monetary policy affects aggregate demand.
M
Quantity fixed
by the Fed
THE INFLUENCE OF MONETARY AND FISCAL POLICY 75
How the Interest-Rate Effect
Works
A fall in P reduces money demand, which lowers r.
Interest P
rate MS
r1
P1
r2 P2
MD1 AD
MD2
M Y1 Y2 Y
r2
P1
r1
AD1
MD AD2
M Y2 Y1 Y
This event would increase agg demand, raising output above its
natural rate.
To offset this event, the Central Bank should reduce MS and increase
r to reduce agg demand.
C. War breaks out in the Middle East, causing oil prices to
soar.
Multiplier
Multiplier effect:
effect: the
the additional
additional shifts
shifts in
in AD
AD
that
that result
result when
when fiscal
fiscal policy
policy increases
increases income
income
and
and thereby
thereby increases
increases consumer
consumer spending
spending
1. The Multiplier Effect
A $20b increase in G P
initially shifts AD
to the right by $20b.
AD2 AD3
The increase in Y AD1
causes C to rise, which
shifts AD further to the P1
right. $20 billion
Y1 Y2 Y3 Y
The multiplier
AD AD2
r2 AD1 3
P1
r1
MD2 $20 billion
MD1
M Y1 Y3 Y2 Y
2001:
George W Bush pushed for a
tax cut that helped the economy
recover from a recession that
had just begun.
THE INFLUENCE OF MONETARY AND FISCAL POLICY 101
The Case Against Active Stabilization
Policy
• Monetary policy affects economy with a long lag:
• Firms make investment plans in advance, so I takes time to respond to
changes in r.
• Most economists believe it takes at least 6 months for mon policy to affect
output and employment.
• Fiscal policy also works with a long lag:
• Changes in G and T require Acts of Congress.
• The legislative process can take months or years.
107
Summary
• An increase in the money supply causes the interest rate
to fall, which stimulates investment and shifts the
aggregate demand curve rightward.
• Expansionary fiscal policy – a spending increase or tax
cut – shifts aggregate demand to the right.
Contractionary fiscal policy shifts aggregate demand to
the left.
108
Summary
• When the government alters spending or taxes, the
resulting shift in aggregate demand can be larger or
smaller than the fiscal change:
• The multiplier effect tends to amplify the effects of fiscal
policy on aggregate demand.
• The crowding-out effect tends to dampen the effects of
fiscal policy on aggregate demand.
109
Summary
• Economists disagree about how actively policymakers
should try to stabilize the economy.
• Some argue that the government should use
fiscal and monetary policy to combat destabilizing
fluctuations in output and employment.
• Others argue that policy will end up destabilizing the
economy because policies work with long lags.
110
PR lagi
• Kondisi perekonomian negeri Narnia sedang dilanda resesi yang ditandai
oleh pengangguran yang tinggi dan output yang rendah.
• Anda diminta untuk mengilustrasikan situasi tersebut dengan menggunakan
diagram (grafik) permintaan agregat (AD) and penawaran agregat (AS). (hint:
gunakan kurva AD, kurva AS jangka pendek, dan kurva AS jangka panjang)
• Jelaskan kebijakan operasi pasar terbuka yang dapat mengembalikan
perekonomian ke tingkat alamiahnya (full-employment equilibrium).
• Dengan menggunakan kurva AD, kurva AS jangka pendek, dan kurva AS
jangka panjang, tunjukkan dampak dari operasi pasar terbuka terhadap
output dan tingkat harga. Jelaskan jawaban Anda!