曼昆第10版课件mankiw10e-lecture-slides-ch11

AggregateDemandI:BuildingtheIS-LMModelMacroeconomicsN.GregoryMankiw©2019WorthPublishers,allrightsreservedINTHISCHAPTER,YOUWILLLEARN:AbouttheIScurveanditsrelationshipto:theKeynesiancrosstheloanablefundsmodelAbouttheLMcurveanditsrelationshipto:thetheoryofliquiditypreferenceHowtheIS–LMmodeldeterminesincomeandtheinterestrateintheshortrunwhenPisfixedContext,part1Chapter10introducedthemodelofaggregatedemandandaggregatesupply.Longrun:pricesflexibleoutputdeterminedbyfactorsofproductionandtechnologyunemploymentequalsitsnaturalrateShortrun:pricesfixedoutputdeterminedbyaggregatedemandunemploymentnegativelyrelatedtooutputContext,part2ThischapterdevelopstheIS–LMmodel,thebasisoftheaggregatedemandcurve.Wefocusontheshortrunandassumethepricelevelisfixed(sotheSRAScurveishorizontal).Chapters11and12focusontheclosed-economycase.Chapter13presentstheopen-economycase.TheKeynesiancrossAsimpleclosed-economymodelinwhichincomeisdeterminedbyexpenditure.

(duetoJ.M.Keynes)Notation:I

=plannedinvestmentPE

=C+I+G

=plannedexpenditureY

=realGDP=actualexpenditureDifferencebetweenactualandplannedexpenditure=unplannedinventoryinvestmentElementsoftheKeynesiancrossequilibriumcondition:GraphingplannedexpenditureGraphingtheequilibriumconditionTheequilibriumvalueofincomeAnincreaseingovernmentpurchasesAtY1,thereisnowanunplanneddropininventory......sofirmsincreaseoutput,andincomerisestowardanewequilibrium.SolvingforΔY(1of2)CollecttermswithΔY

ontheleftsideoftheequalssign:SolveforΔY

:Thegovernmentpurchasesmultiplierdefinition:theincreaseinincomeresultingfroma$1increaseinG.Inthismodel,thegovtpurchasesmultiplierequalsExample:IfMPC=0.8,thenAnincreaseinGcausesincometoincrease5timesasmuch!Whythemultiplierisgreaterthan1Initially,theincreaseinGcausesanequalincreaseinY:

ΔY

=ΔG.But

Ycauses

Cwhichcausesfurther

Y

whichthencausesfurther

Cwhichthencausesfurther

YSothefinalimpactonincomeismuchbiggerthantheinitialΔG.AnincreaseintaxesSolvingforΔY(2of2)Finalresult:Thetaxmultiplier,part1Definition:thechangeinincomeresultingfroma$1increaseinT:IfMPC=0.8,thenthetaxmultiplierequalsThetaxmultiplier,part2...isnegative:

AtaxincreasereducesC,whichreducesincome....isgreaterthanone

(inabsolutevalue):

Achangeintaxeshasamultipliereffectonincome....issmallerthanthegovtspendingmultiplier:

Consumerssavethefraction(1–MPC)ofataxcut,sotheinitialboostinspendingfromataxcutissmallerthanfromanequalincreaseinG.NOWYOUTRY

PracticewiththeKeynesiancrossUseagraphoftheKeynesiancrosstoshowtheeffectsofanincreaseinplannedinvestmentontheequilibriumlevelofincome/output.NOWYOUTRY

PracticewiththeKeynesiancross,answerAtY1,thereisnowanunplanneddropininventory......sofirmsincreaseoutput,andincomerisestowardanewequilibrium.TheIScurvedefinition:agraphofallcombinationsofrandYthatresultingoodsmarketequilibriumexample:actualexpenditure(output)

=plannedexpenditureTheequationfortheIScurveis:DerivingtheIScurveWhentheIScurveisnegativelyslopedAfallintheinterestratemotivatesfirmstoincreaseinvestmentspending,whichdrivesuptotalplannedspending(PE).Torestoreequilibriuminthegoodsmarket,output(a.k.a.actualexpenditure,Y)mustincrease.FiscalpolicyandtheIScurveWecanusetheIS–LMmodeltoseehowfiscalpolicy(GandT)affectsaggregatedemandandoutput.Let’sstartbyusingtheKeynesiancrosstoseehowfiscalpolicyshiftstheIScurve...ShiftingtheIS

curve:ΔGAtanyvalueofr,

G

PE

Y...sotheIScurveshiftstotheright.ThehorizontaldistanceoftheIS

shiftequalsNOWYOUTRY

ShiftingtheIScurve:ΔTUsethediagramoftheKeynesiancrossorloanablefundsmodeltoshowhowanincreaseintaxesshiftstheIScurve.Ifyoucan,determinethesizeoftheshift.NOWYOUTRY

ShiftingtheIScurve:ΔT,answerAtanyvalueofr,

T

C

PE...sotheIScurveshiftstotheleft.ThehorizontaldistanceoftheIS

curveshiftequalsThetheoryofliquiditypreferenceduetoJohnMaynardKeynesasimpletheoryinwhichtheinterestrateisdeterminedbymoneysupplyandmoneydemandMoneysupplyThesupplyofrealmoneybalancesisfixed:MoneydemandDemandforrealmoneybalances:EquilibriumHowtheFedraisestheinterestrateCASESTUDY:Monetarytighteningandinterestrates,part1Late1970s:π>10%Oct1979:FedChairPaulVolckerannouncesthatmonetarypolicywouldaimtoreduceinflationAug1979–April1980:FedreducesM/P

8.0%Jan1983:π=3.7%Howdoyouthinkthispolicychangewouldaffectnominalinterestrates?CASESTUDY:Monetarytighteningandinterestrates,part2TheeffectsofamonetarytighteningonnominalinterestratesShortrunLongrunModelLiquiditypreference(Keynesian)Quantitytheory,Fishereffect(classical)PricesStickyFlexiblePredictionΔi>0Δi<0Actualoutcome8/1979:i=10.4%4/1980:i=15.8%8/1979:i=10.4%1/1983:i=8.2%TheLM

curveNowlet’sputYbackintothemoneydemandfunction:TheLM

curve

isagraphofallcombinationsofr

andYthatequatethesupplyanddemandforrealmoneybalances.TheequationfortheLM

curveis:DerivingtheLMcurveTheIScurveandtheloanablefundsmodel(a)Theloanablefundsmodel(b)TheIS

curveWhytheLMcurveisupwardslopingAnincreaseinincomeraisesmoneydemand.Sincethesupplyofrealbalancesisfixed,thereisnowexcessdemandinthemoneymarketattheinitialinterestrate.Theinterestratemustrisetorestoreequilibriuminthemoneymarket.HowΔMshiftstheLMcurveNOWYOUTRY

ShiftingtheLMcurveSupposeawaveofcreditcardfraudcausesconsumerstousecashmorefrequentlyintransactions.UsetheliquiditypreferencemodeltoshowhowtheseeventsshifttheLMcurve.NOWYOUTRY

ShiftingtheLMcurve,answerTheshort-runequilibriumTheshort-runequilibriumisthecombinationofrandYthatsimultaneouslysatisfiestheequilibriumconditionsinthegoodsandmoneymarkets:ThebigpicturePreviewofChapter12InChapter12,wewillusetheIS–LMmodeltoanalyzetheimpactofpoliciesandshocks.learnhowtheaggregatedemandcurvecomesfromIS-LM.usetheIS–LMandAD–ASmodelstogethertoanalyzetheshort-runandlong-runeffectsofshocks.useourmodelstolearnabouttheGreatDepression.CHAPTERSUMMARY,PART1Keynesiancrossbasicmodelofincomedeterminationtakesfiscalpolicyandinvestmentasexogenousfiscalpolicyhasamultipliereffecton