宏观经济学chap10.ppt

CHAPTER10AggregateDemandI,Chapter10,AggregateDemandI:BuildingtheIS-LMModel,CHAPTER10AggregateDemandI,Inthischapter,youwilllearn,theIScurve,anditsrelationtotheKeynesiancrosstheloanablefundsmodeltheLMcurve,anditsrelationtothetheoryofliquiditypreferencehowtheIS-LMmodeldeterminesincomeandtheinterestrateintheshortrunwhenPisfixed,CHAPTER10AggregateDemandI,Context,Chapter9introducedthemodelofaggregatedemandandaggregatesupply.Longrunpricesflexibleoutputdeterminedbyfactorsofproduction&technologyunemploymentequalsitsnaturalrateShortrunpricesfixedoutputdeterminedbyaggregatedemandunemploymentnegativelyrelatedtooutput,CHAPTER10AggregateDemandI,Context,ThischapterdevelopstheIS-LMmodel,thebasisoftheaggregatedemandcurve.Wefocusontheshortrunandassumethepricelevelisfixed(so,SRAScurveishorizontal).Thischapter(andchapter11)focusontheclosed-economycase.Chapter12presentstheopen-economycase.,CHAPTER10AggregateDemandI,TheKeynesianCross,Asimpleclosedeconomymodelinwhichincomeisdeterminedbyexpenditure.(duetoJ.M.Keynes)Notation:I=plannedinvestmentE=C+I+G=plannedexpenditureY=realGDP=actualexpenditureDifferencebetweenactual&plannedexpenditure=unplannedinventoryinvestment,CHAPTER10AggregateDemandI,ElementsoftheKeynesianCross,consumptionfunction:,fornow,plannedinvestmentisexogenous:,plannedexpenditure:,equilibriumcondition:,govtpolicyvariables:,actualexpenditure=plannedexpenditure,CHAPTER10AggregateDemandI,Graphingplannedexpenditure,income,output,Y,Eplannedexpenditure,CHAPTER10AggregateDemandI,Graphingtheequilibriumcondition,income,output,Y,Eplannedexpenditure,45,CHAPTER10AggregateDemandI,Theequilibriumvalueofincome,income,output,Y,Eplannedexpenditure,E=Y,E=C+I+G,CHAPTER10AggregateDemandI,Anincreaseingovernmentpurchases,E=Y,sofirmsincreaseoutput,andincomerisestowardanewequilibrium.,CHAPTER10AggregateDemandI,SolvingforY,equilibriumcondition,inchanges,becauseIexogenous,becauseC=MPCY,CollecttermswithYontheleftsideoftheequalssign:,CHAPTER10AggregateDemandI,Thegovernmentpurchasesmultiplier,Example:IfMPC=0.8,then,Definition:theincreaseinincomeresultingfroma$1increaseinG.Inthismodel,thegovtpurchasesmultiplierequals,AnincreaseinGcausesincometoincrease5timesasmuch!,CHAPTER10AggregateDemandI,Whythemultiplierisgreaterthan1,Initially,theincreaseinGcausesanequalincreaseinY:Y=G.ButYCfurtherYfurtherCfurtherYSothefinalimpactonincomeismuchbiggerthantheinitialG.,CHAPTER10AggregateDemandI,Anincreaseintaxes,sofirmsreduceoutput,andincomefallstowardanewequilibrium,Initially,thetaxincreasereducesconsumption,andthereforeE:,CHAPTER10AggregateDemandI,SolvingforY,eqmconditioninchanges,IandGexogenous,SolvingforY:,Finalresult:,CHAPTER10AggregateDemandI,Thetaxmultiplier,def:thechangeinincomeresultingfroma$1increaseinT:,IfMPC=0.8,thenthetaxmultiplierequals,CHAPTER10AggregateDemandI,Thetaxmultiplier,isnegative:AtaxincreasereducesC,whichreducesincome.issmallerthanthegovtspendingmultiplier:Consumerssavethefraction(1MPC)ofataxcut,sotheinitialboostinspendingfromataxcutissmallerthanfromanequalincreaseinG.,CHAPTER10AggregateDemandI,Exercise:,UseagraphoftheKeynesiancrosstoshowtheeffectsofanincreaseinplannedinvestmentontheequilibriumlevelofincome/output.,CHAPTER10AggregateDemandI,TheIScurve,def:agraphofallcombinationsofrandYthatresultingoodsmarketequilibriumi.e.actualexpenditure(output)=plannedexpenditureTheequationfortheIScurveis:,CHAPTER10AggregateDemandI,Y2,Y1,Y2,Y1,DerivingtheIScurve,rI,E=C+I(r1)+G,E=C+I(r2)+G,r1,r2,E=Y,IS,E,Y,CHAPTER10AggregateDemandI,WhytheIScurveisnegativelysloped,Afallintheinterestratemotivatesfirmstoincreaseinvestmentspending,whichdrivesuptotalplannedspending(E).Torestoreequilibriuminthegoodsmarket,output(a.k.a.actualexpenditure,Y)mustincrease.,CHAPTER10AggregateDemandI,TheIScurveandtheloanablefundsmodel,r1,r2,r1,r2,(a)TheL.F.model,(b)TheIScurve,IS,CHAPTER10AggregateDemandI,TheIScurvecanalsobederivedfromthe(hopefullynowfamiliar)loanablefundsmodelfromchapter3.AdecreaseinincomefromY1toY2causesafallinnationalsaving.(Recall,S=Y-C-G)Thefallinsavingcausesareductioninthesupplyofloanablefunds.Theinterestratemustrisetorestoreequilibriumtotheloanablefundsmarket.NowwecanseewheretheIScurvegetsitsname:Whentheloanablefundsmarketisinequilibrium,investment=saving.TheIScurveshowsallcombinationsofrandYsuchthatinvestment(I)equalssaving(S).Hence,“IScurve.”,CHAPTER10AggregateDemandI,FiscalPolicyandtheIScurve,WecanusetheIS-LMmodeltoseehowfiscalpolicy(GandT)affectsaggregatedemandandoutput.LetsstartbyusingtheKeynesiancrosstoseehowfiscalpolicyshiftstheIScurve,CHAPTER10AggregateDemandI,Y2,Y1,Y2,Y1,ShiftingtheIScurve:G,Atanyvalueofr,GEY,E=C+I(r1)+G1,E=C+I(r1)+G2,r1,E=Y,IS1,ThehorizontaldistanceoftheISshiftequals,IS2,sotheIScurveshiftstotheright.,CHAPTER10AggregateDemandI,Exercise:ShiftingtheIScurve,UsethediagramoftheKeynesiancrossorloanablefundsmodeltoshowhowanincreaseintaxesshiftstheIScurve.,CHAPTER10AggregateDemandI,TheTheoryofLiquidityPreference,DuetoJohnMaynardKeynes.Asimpletheoryinwhichtheinterestrateisdeterminedbymoneysupplyandmoneydemand.,CHAPTER10AggregateDemandI,Moneysupply,Thesupplyofrealmoneybalancesisfixed:,M/Prealmoneybalances,rinterestrate,CHAPTER10AggregateDemandI,Moneydemand,Demandforrealmoneybalances:,M/Prealmoneybalances,rinterestrate,L(r),CHAPTER10AggregateDemandI,Equilibrium,Theinterestrateadjuststoequatethesupplyanddemandformoney:,M/Prealmoneybalances,rinterestrate,L(r),r1,CHAPTER10AggregateDemandI,HowtheFedraisestheinterestrate,Toincreaser,FedreducesM,M/Prealmoneybalances,rinterestrate,L(r),r1,r2,CHAPTER10AggregateDemandI,CASESTUDY:MonetaryTightening&InterestRates,Late1970s:10%Oct1979:FedChairmanPaulVolckerannouncesthatmonetarypolicywouldaimtoreduceinflationAug1979-April1980:FedreducesM/P8.0%Jan1983:=3.7%,Howdoyouthinkthispolicychangewouldaffectnominalinterestrates?,MonetaryTightening&Rates,cont.,i0,8/1979:i=10.4%1/1983:i=8.2%,8/1979:i=10.4%4/1980:i=15.8%,flexible,sticky,Quantitytheory,Fishereffect(Classical),Liquiditypreference(Keynesian),CHAPTER4MoneyandInflation,Thequantitytheoryofmoney,cont.(fromChapter4),Y/Ydependsongrowthinthefactorsofproductionandontechnologicalprogress(allofwhichwetakeasgiven,fornow).,Hence,theQuantityTheorypredictsaone-for-onerelationbetweenchangesinthemoneygrowthrateandchangesintheinflationrate.,CHAPTER10AggregateDemandI,TheLMcurve,NowletsputYbackintothemoneydemandfunction:,TheLMcurveisagraphofallcombinationsofrandYthatequatethesupplyanddemandforrealmoneybalances.TheequationfortheLMcurveis:,CHAPTER10AggregateDemandI,DerivingtheLMcurve,r1,r2,r1,r2,(a)Themarketforrealmoneybalances,(b)TheLMcurve,CHAPTER10AggregateDemandI,WhytheLMcurveisupwardsloping,Anincreaseinincomeraisesmoneydemand.Sincethesupplyofrealbalancesisfixed,thereisnowexcessdemandinthemoneymarketattheinitialinterestrate.Theinterestratemustrisetorestoreequilibriuminthemoneymarket.,CHAPTER10AggregateDemandI,HowMshiftstheLMcurve,r1,r2,r1,r2,(a)Themarketforrealmoneybalances,(b)TheLMcurve,CHAPTER10AggregateDemandI,Exercise:ShiftingtheLMcurve,Supposeawaveofcreditcardfraudcausesconsumerstousecashmorefrequentlyintransactions.UsetheliquiditypreferencemodeltoshowhowtheseeventsshifttheLMcurve.,CHAPTER10AggregateDemandI,Theshort-runequilibrium,Theshort-runequilibriumisthecombinationofrandYthatsimultaneouslysatisfiestheequilibriumconditionsinthegoods&moneymarkets:,Equilibriuminterestrate,Equilibriumlevelofincome,CHAPTER10AggregateDemandI,TheBigPicture,KeynesianCross,TheoryofLiquidityPreference,IScurve,LMcurve,IS-LMmodel,Agg.demandcurve,Agg.supplycurve,ModelofAgg.DemandandAgg.Supply,Explanationofshort-runfluctuations,CHAPTER10AggregateDemandI,PreviewofChapter11,InChapter11,wewillusetheIS-LMmodeltoanalyzetheimpactofpoliciesandshocks.learnhowtheaggregatedemandcurvecomesfromIS-LM.usetheIS-LMandAD-ASmodelstogethertoanalyzetheshort-runandlong-runeffectsofshocks.useourmodelstolearnabouttheGreatDepression.,Chap