宏观经济学chap10课件

1、In this chapter, you will learnthe IS curve, and its relation tothe Keynesian crossthe loanable funds modelthe LM curve, and its relation tothe theory of liquidity preference how the IS-LM model determines income and the interest rate in the short run when P is fixed CHAPTER 10 Aggregate Demand IIn

2、this chapter, you will learContextChapter 9 introduced the model of aggregate demand and aggregate supply. Long runprices flexibleoutput determined by factors of production & technologyunemployment equals its natural rateShort runprices fixedoutput determined by aggregate demandunemployment negative

3、ly related to outputCHAPTER 10 Aggregate Demand IContextChapter 9 introduced thContextThis chapter develops the IS-LM model, the basis of the aggregate demand curve. We focus on the short run and assume the price level is fixed (so, SRAS curve is horizontal). This chapter (and chapter 11) focus on t

4、he closed-economy case. Chapter 12 presents the open-economy case.CHAPTER 10 Aggregate Demand IContextThis chapter develops tThe Keynesian CrossA simple closed economy model in which income is determined by expenditure. (due to J.M. Keynes)Notation: I = planned investmentE = C + I + G = planned expe

5、nditureY = real GDP = actual expenditureDifference between actual & planned expenditure = unplanned inventory investmentCHAPTER 10 Aggregate Demand IThe Keynesian CrossA simple clElements of the Keynesian CrossCHAPTER 10 Aggregate Demand Iconsumption function:for now, plannedinvestment is exogenous:

6、planned expenditure:equilibrium condition:govt policy variables:actual expenditure = planned expenditureElements of the Keynesian CrosGraphing planned expenditureCHAPTER 10 Aggregate Demand Iincome, output, Y EplannedexpenditureE =C +I +G MPC1Graphing planned expenditureCHGraphing the equilibrium co

7、nditionCHAPTER 10 Aggregate Demand Iincome, output, Y EplannedexpenditureE =Y 45Graphing the equilibrium condiThe equilibrium value of incomeCHAPTER 10 Aggregate Demand Iincome, output, Y EplannedexpenditureE =Y E =C +I +G Equilibrium incomeThe equilibrium value of incomAn increase in government pur

8、chasesCHAPTER 10 Aggregate Demand IY EE =Y E =C +I +G1E1 = Y1E =C +I +G2E2 = Y2YAt Y1, there is now an unplanned drop in inventoryso firms increase output, and income rises toward a new equilibrium.GAn increase in government purcSolving for YCHAPTER 10 Aggregate Demand Iequilibrium conditionin chang

9、esbecause I exogenousbecause C = MPC Y Collect terms with Y on the left side of the equals sign:Solve for Y :Solving for YCHAPTER 10 AggThe government purchases multiplierDefinition: the increase in income resulting from a $1 increase in G.In this model, the govt purchases multiplier equalsCHAPTER 1

10、0 Aggregate Demand IExample: If MPC = 0.8, thenAn increase in G causes income to increase 5 times as much!The government purchases multiWhy the multiplier is greater than 1Initially, the increase in G causes an equal increase in Y: Y = G.But Y C further Y further C further YSo the final impact on in

11、come is much bigger than the initial G.CHAPTER 10 Aggregate Demand IWhy the multiplier is greater An increase in taxesCHAPTER 10 Aggregate Demand IY EE =Y E =C2 +I +GE2 = Y2E =C1 +I +GE1 = Y1YAt Y1, there is now an unplanned inventory buildupso firms reduce output, and income falls toward a new equi

12、libriumC = MPC TInitially, the tax increase reduces consumption, and therefore E:An increase in taxesCHAPTER 10Solving for YCHAPTER 10 Aggregate Demand Ieqm condition in changesI and G exogenousSolving for Y :Final result:Solving for YCHAPTER 10 AggThe tax multiplierdef: the change in income resulti

13、ng from a $1 increase in T :CHAPTER 10 Aggregate Demand IIf MPC = 0.8, then the tax multiplier equalsThe tax multiplierdef: the chThe tax multiplieris negative: A tax increase reduces C, which reduces income.is smaller than the govt spending multiplier: Consumers save the fraction (1 MPC) of a tax c

14、ut, so the initial boost in spending from a tax cut is smaller than from an equal increase in G. CHAPTER 10 Aggregate Demand IThe tax multiplieris negativeExercise:Use a graph of the Keynesian cross to show the effects of an increase in planned investment on the equilibrium level of income/output. C

15、HAPTER 10 Aggregate Demand IExercise:Use a graph of the KeThe IS curvedef: a graph of all combinations of r and Y that result in goods market equilibriumi.e. actual expenditure (output) = planned expenditureThe equation for the IS curve is:CHAPTER 10 Aggregate Demand IThe IS curvedef: a graph of Der

16、iving the IS curver ICHAPTER 10 Aggregate Demand IY2Y1Y2Y1Y ErY E =C +I (r1 )+G E =C +I (r2 )+G r1r2E =YIS I E YDeriving the IS curver Why the IS curve is negatively slopedA fall in the interest rate motivates firms to increase investment spending, which drives up total planned spending (E ). To res

17、tore equilibrium in the goods market, output (a.k.a. actual expenditure, Y ) must increase. CHAPTER 10 Aggregate Demand IWhy the IS curve is negativelThe IS curve and the loanable funds modelCHAPTER 10 Aggregate Demand IS, IrI (r ) r1r2rYY1r1r2(a)The L.F. model(b) The IS curveY2S1S2ISThe IS curve an

18、d the loanableCHAPTER 10 Aggregate Demand IThe IS curve can also be derived from the (hopefully now familiar) loanable funds model from chapter 3. A decrease in income from Y1 to Y2 causes a fall in national saving. (Recall, S = Y-C-G)The fall in saving causes a reduction in the supply of loanable f

19、unds. The interest rate must rise to restore equilibrium to the loanable funds market. Now we can see where the IS curve gets its name:When the loanable funds market is in equilibrium, investment = saving. The IS curve shows all combinations of r and Y such that investment (I) equals saving (S). Hen

20、ce, “IS curve.” CHAPTER 10 Aggregate Demand Fiscal Policy and the IS curveWe can use the IS-LM model to see how fiscal policy (G and T ) affects aggregate demand and output. Lets start by using the Keynesian cross to see how fiscal policy shifts the IS curveCHAPTER 10 Aggregate Demand IFiscal Policy

21、 and the IS curvShifting the IS curve: GAt any value of r, G E YCHAPTER 10 Aggregate Demand IY2Y1Y2Y1Y ErY E =C +I (r1 )+G1 E =C +I (r1 )+G2 r1E =YIS1The horizontal distance of the IS shift equals IS2so the IS curve shifts to the right.YShifting the IS curve: GAt Exercise: Shifting the IS curveUse t

22、he diagram of the Keynesian cross or loanable funds model to show how an increase in taxes shifts the IS curve. CHAPTER 10 Aggregate Demand IExercise: Shifting the IS curThe Theory of Liquidity PreferenceDue to John Maynard Keynes.A simple theory in which the interest rate is determined by money sup

23、ply and money demand. CHAPTER 10 Aggregate Demand IThe Theory of Liquidity PreferMoney supplyThe supply of real money balances is fixed:CHAPTER 10 Aggregate Demand IM/P real money balancesrinterestrateMoney supplyThe supply of reaMoney demandDemand forreal money balances:CHAPTER 10 Aggregate Demand

24、IM/P real money balancesrinterestrateL (r ) Money demandDemand forreal moEquilibriumThe interest rate adjusts to equate the supply and demand for money:CHAPTER 10 Aggregate Demand IM/P real money balancesrinterestrateL (r ) r1EquilibriumThe interest rate aHow the Fed raises the interest rateTo incre

25、ase r, Fed reduces MCHAPTER 10 Aggregate Demand IM/P real money balancesrinterestrateL (r ) r1r2How the Fed raises the interesCASE STUDY: Monetary Tightening & Interest RatesLate 1970s: 10%Oct 1979: Fed Chairman Paul Volcker announces that monetary policy would aim to reduce inflationAug 1979-April

26、1980: Fed reduces M/P 8.0%Jan 1983: = 3.7%CHAPTER 10 Aggregate Demand IHow do you think this policy change would affect nominal interest rates? CASE STUDY: Monetary TighteniMonetary Tightening & Rates, cont.i 08/1979: i = 10.4%1/1983: i = 8.2%8/1979: i = 10.4%4/1980: i = 15.8%flexiblestickyQuantity

27、theory, Fisher effect(Classical)Liquidity preference(Keynesian)predictionactual outcomeThe effects of a monetary tightening on nominal interest ratespricesmodellong runshort runMonetary Tightening & Rates, cThe quantity theory of money, cont.(from Chapter4)Y/Y depends on growth in the factors of pro

28、duction and on technological progress (all of which we take as given, for now).CHAPTER 4 Money and InflationHence, the Quantity Theory predicts a one-for-one relation between changes in the money growth rate and changes in the inflation rate. The quantity theory of money, The LM curveNow lets put Y

29、back into the money demand function:CHAPTER 10 Aggregate Demand IThe LM curve is a graph of all combinations of r and Y that equate the supply and demand for real money balances.The equation for the LM curve is:The LM curveNow lets put Y Deriving the LM curveCHAPTER 10 Aggregate Demand IM/P rL (r ,

30、Y1 ) r1r2rYY1r1L (r , Y2 ) r2Y2LM(a)The market for real money balances(b) The LM curveDeriving the LM curveCHAPTER Why the LM curve is upward slopingAn increase in income raises money demand. Since the supply of real balances is fixed, there is now excess demand in the money market at the initial in

31、terest rate. The interest rate must rise to restore equilibrium in the money market.CHAPTER 10 Aggregate Demand IWhy the LM curve is upward slHow M shifts the LM curveCHAPTER 10 Aggregate Demand IM/P rL (r , Y1 ) r1r2rYY1r1r2LM1(a)The market for real money balances(b) The LM curveLM2How M shifts the

32、 LM curveCHExercise: Shifting the LM curveSuppose a wave of credit card fraud causes consumers to use cash more frequently in transactions. Use the liquidity preference model to show how these events shift the LM curve. CHAPTER 10 Aggregate Demand IExercise: Shifting the LM curThe short-run equilibr

33、iumThe short-run equilibrium is the combination of r and Y that simultaneously satisfies the equilibrium conditions in the goods & money markets: CHAPTER 10 Aggregate Demand IY rISLMEquilibriuminterestrateEquilibriumlevel ofincomeThe short-run equilibriumThe sThe Big PictureCHAPTER 10 Aggregate Dema

34、nd IKeynesianCrossTheory of Liquidity PreferenceIScurveLM curveIS-LMmodelAgg. demandcurveAgg. supplycurveModel of Agg. Demand and Agg. SupplyExplanation of short-run fluctuationsThe Big PictureCHAPTER 10 AgPreview of Chapter 11In Chapter 11, we willuse the IS-LM model to analyze the impact of policies and shocks.learn how the aggregate demand curve comes from IS-LM.use the IS-LM and AD-AS models together to analyze the short-run and long-run effects of shocks.use our models to learn about the Great D