经济学原理-宏观-讲义6.doc

PRINCIPLES OF ECONOMICS MACROECONOMICSWeek 6. Macroeconomic Equilibrium and the IS-LM ModelThe Effects of Changes in Autonomous Expenditure on P and YWe have seen that:A rise in the price level (P) will shift the aggregate expenditure (AE) curve upwards; and An increase in autonomous expenditure (A) independent of price change will shift the aggregate demand (AD) curve to the right.What will be the effects of an increase in A on P & Y? The answer lies on the shape of the SAS curve.In case (a), an increase in A results in AE0AE1, and hence AD0AD1. Because the SAS(H) curve is horizontal, Y and P remains unchanged.In case (b), an increase in A results in AE0AE1, and hence AD0AD1. Because the SAS(V) curve is vertical, P and Y remains unchanged. The reason is that the higher price level, as we have seen, reduces A and hence shift aggregate expenditure back to AE0.So far we have defined the equality of AD and SAS as macroeconomic equilibrium, but we have said little about the derivation of the AD curve that is, the relationship between AE and P. To derive the AD curve we need to take into account the conditions of demand and supply in both the goods market and the money market. The IS-LM model that we now turn is an essential tool for this purpose.Flow Equilibrium: The IS CurveRecall the aggregate planned expenditure equationAE = C + I + G + (EX - IM) = (a + I + G + EX) + b(1t) mY = A + YPreviously we said that N (= Y) is induced expenditure because it varies with Y. Now consider A, the autonomous expenditure, whose investment component is in fact affected by the real interest rate, i.e., I = c di. (similar to the consumption function C = a + bYd). The aggregate expenditure equation thus becomesAE = (a + c + G + EX) di + b(1t) mY = (A* di) + Y ( A = A* di)We now reformulate the condition for the equality of AE and Y known as flow equilibrium to take into account the influence of the change in interest rate (which is determined by I = S).The IS curve shows combinations of real GDP (Y) and the interest rate (i) at which aggregate planned expenditure equals Y.Points on the IS curve are points at which planned injection into the circular flow of expenditure and income equal the planned leakages from the circular flow.In an economy with no government and no foreign sector, along the IS curve planned investment equals saving.Shifts in the IS curve: note that an increase in autonomous expenditure (an upward shift of the AE curve) that is independent of the interest rate, i.e. an increase in any of (a, G, EX), will shift the IS curve to the right. Check it out yourself.Stock Equilibrium: The LM CurveEquilibrium in the money market is a stock equilibrium, which would be arrived at when MS = MD.The supply of money is determined by the actions of the Central Bank, the banks and similar financial institutions. Given those actions, and given the price level, there is a given quantity of real money (M/P) in existence.The quantity of money demanded depends on the price level, real GDP and the interest rate. Hence, the quantity of real money demanded can be expressed as: MD = kY - h i, which indicates that MD increases as Y increase and decreases as i increases.The LM curve shows combinations of real GDP (Y) and the interest rate (i) at which the quantity of real money demanded (MD), also known as liquidity preference, equals the quantity of real money supplied (MS).The Equilibrium Interest Rate and Real GDPThe intersection of the IS and LM curves determines the equilibrium i and Y. At this point, there is flow equilibrium in the goods market (AE=Y) and stock equilibrium in the money market (MD=MS).The Aggregate Demand Curve in the IS-LM ModelThe point at which the price level enters the IS-LM model is in determining the quantity of real money supplied (M/P). This affects the LM curve.The price level also affects the IS curve, via the real balance effect on expenditure and the international substitution effect. To make things simple, we ignore these effects, which will reinforce the effects that we are studying here.P (e.g. 100120) (M/P) LMoLM1, because a lower (M/P) requires a higher i for money marketequilibrium, e.g. eg. combining IS and LM, ej (i.e. i & Y) for aggregate demand, xy (i.e. P & Y).Similarly, P (e.g. 10086) (M/P) LM