宏观经济学英文课件：CHAP09 Introduction to Economic Fluctuations

1、S E V E N T H E D I T I O NModified for EC 204 by Bob Murphyfacts about the business cyclehow the short run differs from the long runan introduction to aggregate demandan introduction to aggregate supply in the short run and long runhow the model of aggregate demand and aggregate supply can be used

2、to analyze the short-run and long-run effects of “shocks.”3CHAPTER 9 Introduction to Economic FluctuationsFacts about the business cycleGDP growth averages 33.5 percent per year over the long run with large fluctuations in the short run.Consumption and investment fluctuate with GDP, but consumption

3、tends to be less volatile and investment more volatile than GDP. Unemployment rises during recessions and falls during expansions. Okuns Law: the negative relationship between GDP and unemployment. Growth rates of real GDP, consumptionPercent change from 4 quarters earlierAverage growth rateReal GDP

4、 growth rateConsumption growth rateGrowth rates of real GDP, consumption, investmentPercent change from 4 quarters earlierInvestment growth rateReal GDP growth rateConsumption growth rateUnemploymentPercent of labor forceOkuns LawPercentage change in real GDPChange in unemployment rate19751982199120

5、0119841951196620031987200819718CHAPTER 9 Introduction to Economic FluctuationsIndex of Leading Economic IndicatorsPublished monthly by the Conference Board.Aims to forecast changes in economic activity 6-9 months into the future. Used in planning by businesses and govt, despite not being a perfect p

6、redictor. 9CHAPTER 9 Introduction to Economic FluctuationsComponents of the LEI indexAverage workweek in manufacturingInitial weekly claims for unemployment insuranceNew orders for consumer goods and materialsNew orders, nondefense capital goodsVendor performanceNew building permits issuedIndex of s

7、tock pricesM2Yield spread (10-year minus 3-month) on TreasuriesIndex of consumer expectationsIndex of Leading Economic IndicatorsSource: Conference Board2004 = 10011CHAPTER 9 Introduction to Economic FluctuationsTime horizons in macroeconomicsLong run Prices are flexible, respond to changes in suppl

8、y or demand.Short runMany prices are “sticky” at a predetermined level.The economy behaves much differently when prices are sticky.12CHAPTER 9 Introduction to Economic FluctuationsRecap of classical macro theory (Chaps. 3-8)Output is determined by the supply side:supplies of capital, labortechnology

9、Changes in demand for goods & services (C, I, G ) only affect prices, not quantities.Assumes complete price flexibility. Applies to the long run.13CHAPTER 9 Introduction to Economic FluctuationsWhen prices are stickyoutput and employment also depend on demand, which is affected by:fiscal policy

10、(G and T )monetary policy (M )other factors, like exogenous changes in C or I 14CHAPTER 9 Introduction to Economic FluctuationsThe model of aggregate demand and supplyThe paradigm most mainstream economists and policymakers use to think about economic fluctuations and policies to stabilize the econo

11、my Shows how the price level and aggregate output are determinedShows how the economys behavior is different in the short run and long run15CHAPTER 9 Introduction to Economic FluctuationsAggregate demandThe aggregate demand curve shows the relationship between the price level and the quantity of out

12、put demanded. For this chapters intro to the AD/AS model, we use a simple theory of aggregate demand based on the quantity theory of money. Chapters 10-12 develop the theory of aggregate demand in more detail. 16CHAPTER 9 Introduction to Economic FluctuationsThe Quantity Equation as Aggregate Demand

13、From Chapter 4, recall the quantity equationM V = P Y For given values of M and V, this equation implies an inverse relationship between P and Y 17CHAPTER 9 Introduction to Economic FluctuationsThe downward-sloping AD curveAn increase in the price level causes a fall in real money balances (M/P ),ca

14、using a decrease in the demand for goods & services.Y PAD18CHAPTER 9 Introduction to Economic FluctuationsShifting the AD curveAn increase in the money supply shifts the AD curve to the right. Y PAD1AD219CHAPTER 9 Introduction to Economic FluctuationsAggregate supply in the long runRecall from C

15、hapter 3: In the long run, output is determined by factor supplies and technologyis the full-employment or natural level of output, at which the economys resources are fully employed.“Full employment” means that unemployment equals its natural rate (not zero).20CHAPTER 9 Introduction to Economic Flu

16、ctuationsThe long-run aggregate supply curveY PLRAS does not depend on P, so LRAS is vertical. 21CHAPTER 9 Introduction to Economic FluctuationsLong-run effects of an increase in MY PAD1LRASAn increase in M shifts AD to the right. P1P2In the long run, this raises the price levelbut leaves output the

17、 same.AD222CHAPTER 9 Introduction to Economic FluctuationsAggregate supply in the short runMany prices are sticky in the short run. For now (and through Chap. 12), we assume all prices are stuck at a predetermined level in the short run.firms are willing to sell as much at that price level as their

18、customers are willing to buy. Therefore, the short-run aggregate supply (SRAS) curve is horizontal:23CHAPTER 9 Introduction to Economic FluctuationsThe short-run aggregate supply curveY PSRASThe SRAS curve is horizontal:The price level is fixed at a predetermined level, and firms sell as much as buy

19、ers demand.24CHAPTER 9 Introduction to Economic FluctuationsShort-run effects of an increase in MY PAD1In the short run when prices are sticky,causes output to rise.SRASY2Y1AD2an increase in aggregate demand25CHAPTER 9 Introduction to Economic FluctuationsFrom the short run to the long runOver time,

20、 prices gradually become “unstuck.” When they do, will they rise or fall? risefallremain constantIn the short-run equilibrium, ifthen over time, P willThe adjustment of prices is what moves the economy to its long-run equilibrium.26CHAPTER 9 Introduction to Economic FluctuationsThe SR & LR effec

21、ts of M 0Y PAD1LRASSRASP2Y2A = initial equilibriumABCB = new short-run eqm after Fed increases MC = long-run equilibriumAD227CHAPTER 9 Introduction to Economic FluctuationsHow shocking!shocks: exogenous changes in agg. supply or demandShocks temporarily push the economy away from full employment.Exa

22、mple: exogenous decrease in velocity If the money supply is held constant, a decrease in V means people will be using their money in fewer transactions, causing a decrease in demand for goods and services.28CHAPTER 9 Introduction to Economic FluctuationsSRASLRASAD2The effects of a negative demand sh

23、ockY PAD1P2Y2AD shifts left, depressing output and employment in the short run.ABCOver time, prices fall and the economy moves down its demand curve toward full-employment.29CHAPTER 9 Introduction to Economic FluctuationsSupply shocksA supply shock alters production costs, affects the prices that fi

24、rms charge. (also called price shocks)Examples of adverse supply shocks:Bad weather reduces crop yields, pushing up food prices. Workers unionize, negotiate wage increases. New environmental regulations require firms to reduce emissions. Firms charge higher prices to help cover the costs of complian

25、ce. Favorable supply shocks lower costs and prices.30CHAPTER 9 Introduction to Economic FluctuationsCASE STUDY: The 1970s oil shocksEarly 1970s: OPEC coordinates a reduction in the supply of oil.Oil prices rose11% in 1973 68% in 1974 16% in 1975Such sharp oil price increases are supply shocks becaus

26、e they significantly impact production costs and prices.31CHAPTER 9 Introduction to Economic FluctuationsSRAS1Y PADLRASY2CASE STUDY: The 1970s oil shocksThe oil price shock shifts SRAS up, causing output and employment to fall. ABIn absence of further price shocks, prices will fall over time and eco

27、nomy moves back toward full employment.SRAS2A32CHAPTER 9 Introduction to Economic FluctuationsCASE STUDY: The 1970s oil shocksPredicted effects of the oil shock: inflation output unemployment and then a gradual recovery.33CHAPTER 9 Introduction to Economic FluctuationsCASE STUDY: The 1970s oil shock

28、sLate 1970s: As economy was recovering, oil prices shot up again, causing another huge supply shock!34CHAPTER 9 Introduction to Economic FluctuationsCASE STUDY: The 1980s oil shocks1980s: A favorable supply shock-a significant fall in oil prices. As the model predicts, inflation and unemployment fel

29、l: 35CHAPTER 9 Introduction to Economic FluctuationsStabilization policydef: policy actions aimed at reducing the severity of short-run economic fluctuations.Example: Using monetary policy to combat the effects of adverse supply shocks36CHAPTER 9 Introduction to Economic FluctuationsStabilizing output with monetary policySRAS1Y PAD1BAY2LRASThe adverse supply shock moves the economy to point B.SRAS237CHAPTE