Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Chapter 8
McGraw-Hill/Irwin
Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
Macroeconomics
Firstsome definitions:
Macroeconomics is the study of aggregate economic behavior of the economy as a whole The business cycle is the occurrence of alternating periods of economic growth and contraction
Macro theories try to explain the business cycle; economic policies try to control it
8-5
Stable or Unstable?
Prior to the 1930s, macroeconomists thought there could never be a Great Depression
They believed a market-driven economy was inherently stable
Laissez faire: The doctrine of leave it alone; of non-intervention by government in the market mechanism seemed reasonable at the time
8-6
8-7
Classical Theory
The optimistic views of the classical economists were summarized in Says Law: Supply creates its own demand
Whatever was produced would be sold All workers seeking employment would be hired
Unsold goods and unemployed labor could emerge, but both would disappear once people had time to adjust prices and wages
8-8
Classical Theory
There could be no Great Depression in the classical view of the world Yet, there was! Fifty, sixty, seventy years after the Great Depression, and the analyses that have taken place during that time, have presented a different picture than was first imagined at the time
8-9
Macro Failure
The Great Depression was (seemingly) a stunning blow to classical economists
Unemployment grew and persisted despite falling prices and wages The classical self-adjustment mechanism simply didnt (seem to) work
People seeking answers and solutions to the Depression were desperateand desperate people often are misled (intentionally or unintentionall
8-10
Unemployment
Inflation
Source: U.S. Bureau of the Census, The Statistics of the United States, 1957
8-11
Government Intervention
In Keynes view, the inherent instability of the marketplace required government intervention
When the economy falters we cant afford to wait for some assumed self-adjustment mechanism but must intervene to protect jobs and income The government could do this by priming the pump: buying more output, employing more people, providing more income transfers, and making more money available
8-13
Historical Cycles
Upswings and downturns of the business cycle are gauged in terms of changes in total output Real GDP: The value of final output produced in a given period, adjusted for changing prices Changes in employment typically mirror changes in production The following slide depicts the stylized features of a business cycle
8-14
REAL GDP
TIME
8-15
8-16
From 1929 to 2009, real GDP increased at an average rate of 3 percent a year.
8-18
8-19
Business Slumps
Dates
Aug. 29Mar. 33 May 37 June 38 Feb. 45 Oct. 45 Nov. 48Oct. 49 July 53May 54 Aug. 57Apr. 58 Apr. 60Feb. 61 Dec. 69Nov. 70 Nov. 73Mar. 75
Duration (months)
43 13 8 11 10 8 10 11 16
Jan. 80July 80
July 81Nov. 82 July 90Feb. 91 Mar. 01Nov. 01 Dec 07
6
16 8 8 ?
8.7
12.3 2.2 0.6 ?
7.6
10.8 6.5 5.6 ?
8-20
8-21
OUTCOMES
Output Jobs
External shocks
MACRO ECONOMY
Prices Growth
Policy levers
International balances
The primary outcomes of the macro economy are output of goods and services (GDP), jobs, prices, economic growth, and international balancesOutcomes result from the interplay of internal market forces, external shocks, and policy levers
8-22
Macroeconomic Performance
Determinants of macro performance include:
Internal market forces - Population growth, spending behavior, intervention & innovation, etc. External shocks - Wars, natural disasters, terrorist attacks, trade disruptions, and so on Policy levers - Tax policies, government spending, changes in the availability of money, and regulation, for example
8-23
Macroeconomic Performance
Macroeconomic outcomes include:
Output - Value of goods and services produced (real GDP) Jobs - Levels of employment and unemployment Prices - Average price of goods and services Growth - Year-to-year expansion in production capacity International balances - International value of the dollar; trade and payment balances with other countries
8-24
8-25
Aggregate Demand
The aggregate demand curve illustrates how the real value of purchases varies with the average level of prices
The downward slope suggests that with a given (constant) income, at lower price levels people will buy more goods and services
8-27
Aggregate Demand
PRICE LEVEL
Aggregate demand
REAL OUTPUT
8-28
Aggregate Demand
Three reasons for the downward slope:
Real-balances effect - a change in the price level affects the purchasing power of money Foreign-trade effect - balance of trade depends on domestic price level relative to foreign Interest-rate effect - change in price level affects demand for loan-financed purchases
8-29
Aggregate Supply
Aggregate supply: The total quantity of output (real GDP) producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus Two reasons for upward sloping curve:
The profit effect the primary reason for producing goods and services The cost effect cost pressures are minimal at low levels of output but intense as the economy approaches capacity
8-30
Aggregate Supply
Aggregate supply
PRICE LEVEL
REAL OUTPUT
8-31
Macro Equilibrium
Aggregate supply and demand curves summarize the market activity of the whole (macro) economy Equilibrium (macro): The combination of price level and real output that is compatible with both aggregate demand and aggregate supply Equilibrium is unique; it is the only price-level-output combination that is mutually compatible with aggregate supply and demand
8-32
Macro Equilibrium
Aggregate supply
PRICE LEVEL
P1 E PE
Macro equilibrium
Aggregate demand D1 QE S1
REAL OUTPUT
8-33
Macro Failures
Nevertheless, there are potential problems with macro equilibrium that may lead to disequilibrium:
Undesirability - the equilibrium price or output level may not satisfy policy goals Instability - even if the designated macro equilibrium is optimal, it may not last long
8-34
An Undesired Equilibrium
Aggregate demand Aggregate supply
PRICE LEVEL
PE P*
Equilibrium output QE QF
8-35
An Undesired Equilibrium
Aggregate demand Aggregate supply
PRICE LEVEL
Equilibrium output QE QF
8-36
Instability
Macroeconomic equilibrium changes whenever the aggregate supply and/or demand curves shift Business cycles are likely to result from recurrent shifts of aggregate supply and demand curves
8-37
AS and AD Shifts
Shifts in aggregate supply can be caused by changes in costs of production due to import prices, natural disasters, changed tax policies, or other events Shifts in aggregate demand can be caused by changes in export demand, expectations, taxes, or other events
8-38
Macro Disturbances
(a) Supply shifts AS1 AS0 AD0 G F
PRICE LEVEL
PRICE LEVEL
P1 P*
P* P2
F H
AD0 AD1
Q1 QF
REAL OUTPUT
Q2 Q F
REAL OUTPUT
Demand-Side Theories
(a) Inadequate demand AS (b) Excessive demand AS0
PRICE LEVEL
PRICE LEVEL
P2 P*
E2
P*
E0 E1 AD0 AD1 Q1 QF
REAL OUTPUT
E0
AD2 AD0
QF Q2
REAL OUTPUT
8-41
Keynesian Theory
Keynes argued that a deficiency of spending tends to depress an economy and cause persistently high unemployment Advocated increasing government spending a rightward AD shift to move the economy toward full employment
8-42
Monetary Theories
Monetary Theories emphasize the role of money in financing aggregate demand Money and credit affect ability and willingness to buy goods and services If credit isnt available or is too expensive consumers reduce spending and businesses curtail investment Excessive aggregate demand may cause inflation Both Keynesians and monetarists theories emphasize the potential of aggregate-demand shifts to alter macro outcomes
8-43
Supply-Side Theories
Inadequate supply can keep the economy below its full-employment potential and cause prices to rise as well Might producers be unwilling to supply more goods at current prices?
Could this be a result of greed? Rising costs? Resource shortages? Government taxes and regulation?
8-44
Supply-Side Theories
Supply-side economists believe that the real problem is that high rates of taxation and heavy regulation reduce the incentive to work, to save, and to invest. What is needed is not a demand stimulus but better incentives to stimulate supply. Increases in aggregate supply move us closer to goals of price stability and full employment
8-45
Supply-Side Theories
AS1
AS0
PRICE LEVEL
P3
P0
E3
E0
AD0
Q3
QF
REAL OUTPUT
8-46
8-47
PRICE LEVEL
Fluctuations in aggregate demand affect the price level but not real output.
8-48
8-49
Policy Strategies
Only three strategy options for macro policy:
Shift the aggregate demand curve: Use policy tools that affect total spending Shift the aggregate supply curve: Implement policy levers that influence the costs of production or otherwise affect output Laissez-faire: Dont interfere with the market; let markets self adjust
8-50
8-51
Policy Tools
The laissez-faire approach requires no tools, as the economy naturally self-adjusts to full employment Fiscal policy: The use of government taxes and spending to alter macroeconomic outcomes
8-52
Policy Tools
Monetary policy: The use of money and credit controls to influence macroeconomic outcomes Supply-side policy: The use of tax incentives, (de)regulation, and other mechanisms to increase the ability and willingness to produce goods and services
8-53
Policy Tools
Trade policy can be used to affect international trade and money flows and shift the aggregate demand and/or the aggregate supply curve
8-54