高级宏观经济学课件

Chapter1TheScienceofMacroeconomicsWhatmacroeconomistsstudyHoweconomiststhinkHowthisbookproceeds1-1WhatMacroeconomistsStudyEconomicgrowthInflationanddeflationUnemploymentMacroeconomics,thestudyoftheeconomyasawhole,attemptstoanswertheseandmanyrelatedquestionsSlide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.1-2HowEconomistsThinkTheoryasmodelbuilding(endogenousvariablesandexogenousvariables)Prices:flexibleversusstickyMicroeconomicthinkandmacroeconomicmodelsTounderstandtheeconomy,economistsusemodels—theoriesthatsimplifyrealityinordertorevealhowexogenousvariablesinfluenceendogenousvariables.EndogenousandExogenousVariablesEndogenousvariablesarethosevariablesthatamodeltriestoexplain.Exogenousvariablesarethosevariablesthatamodeltakesasgiven.Thepurposeofamodelistoshowhowtheexogenousvariablesaffecttheendogenousvariables.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide6Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Chapter2TheDateofMacroeconomicsMeasuringthevalueofeconomicactivity:grossdomesticproductMeasuringthecostofliving:theconsumerpriceindexMeasuringjoblessness:theunemploymentrateConclusion:fromeconomicstatisticstoeconomicmodels2-1GrossdomesticproductGDPisthenamewegivetothetotaldollarvalueofthegoodsandservicesproducedwithinanationduringagivenyear.TherearetwowaystoviewGDP(income,expenditure)Slide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.SomerulesforcomputingGDPUsedgoodsInventoriesIntermediategoodsandvalueaddedHousingservicesandotherimputationUndergroundeconomyTheGDPdeflatorRealGDPversusNominalGDPRealGDPisthevalueofgoodsandservicesmeasuredusingaconstantsetofprices.NominalGDPisthevalveofgoodsandservicesmeasuredatcurrentprices.TheGDPDeflatorGDPDeflator=NominalGDP/RealGDPNominalGDP=RealGDP×GDPDeflatorNominalGDPmeasuresthecurrentvalueoftheeconomy.RealGDPmeasuresoutputvaluedatconstantprices.TheGDPdeflatormeasuresthepriceofoutputrelativetoitspriceinthebaseyear.ThecomponentsofexpenditureGDP=Y=C+I+G+NXConsumptionconsistsofgoodsandservicesboughtbyhouseholds.(nondurablegoods,durablegoods,andservices).Investmentconsistsofgoodsboughtforfutureuse.(businessfixedinvestment,residentialfixedinvestment,andinventoryinvestment).Governmentpurchasesarethegoodsandservicesboughtbyfederal,state,andlocalgovernment.Netexports,takesintoaccounttradewithothercountries,arethevalueofgoodsandservicesexportedtoothercountriesminusthevalueofgoodsandservicesthatforeignersprovideus.Slide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.OtherMeasuresofIncomeNNP=GNP-DepreciationNI=NNP-IndirectbusinesstaxesPI=NI-Corporateprofits-Socialinsurancecontributions-Netinterest+Dividends+Governmenttransferstoindividuals+PersonalinterestincomeDPI=PI-Personaltaxandnon-taxpayments=C+S2-2TheconsumerpriceindexCPImeasuresthepriceofafixedbasketofgoodsandservicespurchasedbyatypicalconsumer.LaspeyresindexversusPaascheindexThisincreaseintheoveralllevelofpricesiscallinflation.TheCPIversustheGDPdeflator

ThefirstdifferenceisthattheGDPdeflatormeasuresthepricesofallgoodsandservicesproduced,whereastheCPImeasuresthepricesofonlythegoodsandservicesboughtbyconsumers.TheseconddifferenceisthattheGDPdeflatorincludesonlythosegoodsproduceddomestically.Thethirdandmostsubtledifferenceresultsfromthewaythemeasuresaggregatethemanypricesintheeconomy.TheCPIassignsfixedweightstothepricesofdifferentgoods,whereastheGDPdeflatorassignschangingweights.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.

CaseStudy:DoestheCPIOverstateInflation?ManyeconomistsbelievetheCPItendstooverstateinflation.Oneproblemisthesubstitutionbias.Asecondproblemistheintroductionofthenewgoods.Athirdproblemisunmeasuredchangesin

quality.2-3TheunemploymentrateThelaborforceisdefinedastheemployedandunemployed.Theunemploymentrateisdefinedasthepercentageofthelaborforcethatisunemployed.Thelabor-forceparticipationrateisthepercentageoftheadultpopulationthatisinthelaborforce.Okun’sLawThisnegativerelationshipbetweenunemploymentandGDPiscallOkun’slaw.PercentagechangeinrealGDP=3%-2×changeintheunemploymentrate.Whentheunemploymentraterises,realGDPtypicallygrowsslowerthanitsnormalrateandmayevenfall.Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide6Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Chapter3NationalIncome:WhereItComesFromandWhereItGoesWhatdeterminesthetotalproductionofgodsandservices?HowusnationalincomedistributedtothefactorsofproductionWhatdeterminesthedemandforgoodsandservices?Whatbringsthesupplyanddemandforgoodsandservicesintoequilibrium?ConclusionSlide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.3-1WhatdeterminesthetotalproductionofgoodsandservicesThefactorsofproduction:L,KTheproductionfunction:Y=F(K,L)Constantreturnstoscale:zY=F(zK,zL)ThesupplyofgoodsandservicesY=F(K’,L’)=Y’3-2Howisnationalincomedistributedtothefactorsofproduction?Factorsprices:thewageworkersearnandtherenttheownersofcapitalcollect.Slide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Thedecisionsfacingthecompetitivefirm

Thegoalofthefirmistomaximizeprofit.Profit=Revenue–Laborcost–Capitalcost=PY–WL–RK=PF(K,L)–WL–RKThefirm’sdemandforfactorsThemarginalproductoflabor(thelawofdiminishing)MPL=F(K,L+1)–F(K,L)FromthemarginalproductoflabortolabordemandRealwage:MPL=W/PMPK=R/PThefirmdemandseachfactorofproductionuntilthatfactor’smarginalproductfallstoequalitsrealfactorprice.Slide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Thedivisionofnationalincome

Euler’stheorem:F(K,L)=(MPK×K)+(MPL×L)Economicprofit=Y-(MPK×K)-(MPL×L)

Accountingprofit=Economicprofit+(MPK×K)Totaloutputisdividedbetweenthepaymentstocapitalandthepaymentstolabor,dependingontheirmarginalproductivities.3-3Whatdeterminesthedemandforgoodsandservices?Y=C+I+G+NXConsumption:C=C(Y–T)MPCistheamountbywhichconsumptionchangeswhendisposableincomeincreasesbyonedollar.0<MPC<1Investment

I=I(r)Therealinterestrateisthenominalinterestratecorrectedfortheeffectsofinflation.Governmentpurchases

G=G’T=T’Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide6Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.3-4Whatbringthesupplyanddemandforgoodsandservicesintoequilibrium?EquilibriuminthemarketforgoodsandservicesEquilibriuminthefinancialmarkets

ChangesinsavingChangesininvestmentdemandEquilibriuminthemarketforgoodsandservicesY=C+I+GC=C(Y-T)I=I(r)G=G’T=T’Y=F(K’,L’)Y=C(Y-T)+I(r)＋GY’=C(Y’-T’)+I(r)+G’Attheequilibriuminterestrate,thedemandforgoodsandservicesequalsthesupply.Equilibriuminthefinancialmarkets

Thenationalincomeaccountsidentity:Y-C-G=I(Y-T-C)+(T-G)=IS’=I(r)Attheequilibriuminterestrate,household’desiretosavebalancesfirm’sdesiretoinvest,andthequantityofloanssuppliedequalsthequantitydemanded.Slide7Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide8Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide9Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide10Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide11Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide12Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide13Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide14Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Chapter4EconomicGrowth1

TheSolowgrowthmodelTheaccumulationofcapitalThegoldenrulelevelofcapitalPopulationgrowthConclusionSlide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.4-1TheaccumulationofcapitalThesupplyanddemandforgoodsGrowthinthecapitalstockandthesteadystateApproachingthesteadystate:anumericalexampleHowsavingaffectsgrowthThesupplyanddemandforgoods

Thesupplyofgoodsandtheproductionfunction

Y=F(K,L)zY=F(zK,zL)，If：z=1/L,Y/L=F(K/L,1)y=f(k)MPK=f(k+1)–f(k)Slide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Thedemandfunctionforgoodsandtheconsumptionfunctiony=c＋ic=(1-s)yy=(1-s)y+ii=syk*/f(k*)=s/δGrowthinthecapitalstockandthesteadystate

i=sf(k)Changeincapitalstock=investment–depreciation

k=i–δk=sf(k)–δkIf

k=0,sf(k)=δkSlide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Approachingthesteadystate:anumericalexample

Slide6Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.HowsavingaffectsgrowthIfthesavingrateishigh,theeconomywillhavealargecapitalstockandhighlevelofoutput.Ifthesavingsrateislow,theeconomywillhaveasmallcapitalstockandalowlevelofoutput.Slide7Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide8Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.4-2TheGoldenRulelevelofcapitalComparingsteadystateFindingtheGoldenRulesteadystate:anumericalexampleThetransitiontotheGoldenRulesteadystate

ComparingsteadystateThesteady-statevalueofkthatmaximizeconsumptioniscalltheGoldenRulelevelofcapital.c*=f(k*)–δk*MPK–δ=0，MPK=δAttheGoldenRulelevelofcapital,themarginalproductofcapitalequalsthedepreciationrate.Slide9Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide10Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide11Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.ThetransitiontotheGoldenRulesteadystateWhentheeconomybeginsabovetheGoldenRule,reachtheGoldenRuleproduceshigherconsumptionatallpointsintime.WhentheeconomybeginsbelowtheGoldenRule,reachingtheGoldenRulerequiresinitiallyreducingconsumptiontoincreaseconsumptioninthefuture.“Dountoothersasyouwouldhavethemdountoyou.”Slide12Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide13Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.4-3PopulationGrowthThesteadystatewithpopulationgrowth

k=sf(k)–(δ+n)kTheeffectsofpopulationgrowth

MPK–δ=nSlide14Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide15Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide16Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Chapter5EconomicGrowth11Threenewquestions:ThefirstistomaketheSolowmodelmoregeneralandmorerealistic.Thesecondistoexaminehowanation’spublicpoliciescaninfluencethelevelandgrowthofitsstandardofliving.ThethirdistoconsiderwhattheSolowmodelleavesout.TechnologicalprogressintheSolowModelPoliciestopromotegrowthBeyondtheSolowModel:endogenousgrowththeoryConclusion5-1TechnologicalProgressintheSolowModelTheefficiencyoflaborThesteadystatewithtechnological

progressTheeffectsoftechnologicalprogressTheefficiencyoflaborTheproductionfunction:Y=F(K,L)Y=F(K,L×E)

*

Eistheefficiencyoflabor.*L×Emeasuresthenumberofeffectiveworkers.ThesimplestassumptionabouttechnologicalprogressisthatitcausestheefficiencyoflaborEtogrowatsomeconstantrateg,giscalltherateoflabor-augmentingtechnologicalprogress.ThenumberofeffectiveworkersL×Eisgrowingatraten+g.Thesteadystatewithtechnologicalprogress

K=K/(L×E)y=Y/(L×E)y=f(k)

k=sf(k)–(δ+n+g)kδKisneededtoreplacedepreciatingcapital,nkisneededtoprovidecapitalfornewworkers,andgkisneededtoprovidecapitalforthenew“effectiveworkers”createdbytechnologicalprogress.Slide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Theeffectsoftechnologicalprogress

AccordingtotheSolowmodel,only

technologicalprogresscanexplainpersistentlyrisinglivingstandards.TheGoldenRulelevelofcapitalisnowdefinedasthesteadystatethatmaximizesconsumptionpereffectiveworker.c*=f(k*)–(δ+n+g)k*MPK=δ+n+gMPK–δ=n+gSlide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.5-2PoliciestoPromoteGrowthEvaluatingtherateofsavingChangingtherateofsavingAllocatingtheeconomy’sinvestmentEncouragingtechnologicalprogressEvaluatingtherateofsavingTheGoldenRuleprovidesthebenchmarkagainstwhichwecancomparethenationaleconomy.Asweestablishedearlier,attheGoldenRulesteadystate,MPK–δ=n+g.IftheeconomyisoperatingwithlesscapitalthanintheGoldenRulesteadystate,thendiminishingmarginalproducttellsusthatMPK–δ>n+g.Inthiscase,increasingtherateofsavingwilleventuallyleadtoasteadystatewithhigherconsumption.Ontheotherhand,iftheeconomyisoperatingwithtoomuchcapital,thenMPK–δ<n+g,andtherateofsavingshouldbereduced.ChangingtherateofsavingNationalsaving=privatesaving+publicsavingPublicsaving:T–(G+TR)

Budgetdeficit:T–(G+TR)<0Budgetsurplus:T–(G+TR)>0Privatesaving:tax-exemptretirementaccount(Casestudy)Allocatingtheeconomy’sinvestmentTherearemanytypesofcapital:privatecapitalandpubliccapital;physicalcapitalandhumancapitalLearningbydoingTechnologicalexternalityKnowledgespilloverEncouragingtechnologicalprocessThepatentsystemgivesatemporarymonopolytoinventorsofnewproduct;thetax

codeofferstaxbreaksforfirmsengaginginresearchanddevelopment;andgovernmentagenciessuchastheNationalScienceFoundationdirectlysubsidizebasicresearchinuniversities.Casestudy:TheWorldSlowdowninEconomicGrowthMeasurementproblemsOilpricesWorkerqualityThedepletionofideasSlide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.5-3BeyondtheSolowModel:EndogenousGrowthTheoryThebasicmodelAtwo-sectormodelTheMicroeconomicsofresearchanddevelopmentTheBasicModelThesimpleproductionfunction:

Y=AKAisaconstantmeasuringtheamountofoutputproducedforeachunitofcapital.ThisabsenceofdiminishingreturnstocapitalisthekeydifferencebetweenthismodelandtheSolowmodel.

K=sY–Δk

Y/Y=

K/K=sA–δAslongassA>δ,theeconomy’sincomegrowsforever,evenwithouttheassumptionofexogenoustechnologicalprogress.IntheSolowmodel,savingleadstogrowthtemporarily,butdiminishingreturnstocapitaleventuallyforcetheeconomytoapproachasteadystateinwhichgrowthdependsonlyexogenoustechnologicalprogress.Bycontrast,inthisendogenousgrowthmodel,savingandinvestmentcanleadtopersistentgrowth.ATwo-SectorModelTwosector:manufacturingfirmsandresearchuniversitiesY=F[K,(1-u)EL]

E=g(u)E

K=sY–δKTherearetwokeydecisionvariablesinthismodel:sandu.sdeterminesthesteadystatestockofphysicalcapital.Inaddition,udeterminesthegrowthinthestockofknowledge.Bothsanduaffectthelevelofincome,althoughonlyuaffectsthesteady-stategrowthrateofincome.TheMicroeconomicsofResearchandDevelopmentThreefacts:First,althoughknowledgeislargelyapublicgood,muchresearchisdoneinfirmsthataredrivenbytheprofitmotive.Second,researchisprofitablebecauseinnovationsgivefirmstemporarymonopolies.Third,whenonefirminnovates,otherfirmsbuildonthatinnovationtoproducethenextgenerationofinnovations.“standingonshoulders”“steppingontoes”Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Chapter6UnemploymentInthischapterwebeginourstudyofunemploymentbydiscussingwhythereisalwayssomeunemploymentandwhatdeterminesitslevel.Hereweexaminethedeterminantsofthenaturalrateofunemployment—theaveragerateofunemploymentaroundwhichtheeconomyfluctuates.Slide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Jobloss,jobfinding,andthenaturalrateofunemploymentJobsearchandfrictionalunemploymentReal-wagerigidityandwaitunemploymentPatternsofunemployment6-1Jobloss,Jobfinding,andtheNaturalRateofUnemploymentThenaturalrateofunemploymentisthesteady-staterateofunemployment.Itdependsontherateofjobseparationandtherateofjobfinding.L=E+UfU=sEfU=s(L–U)U/L=s/(s+f)Anypolicyaimedatlowingthenaturalrateofunemploymentmusteitherreducetherateofjobseparationorincreasetherateofjobfinding.Similarly,anypolicythataffectstherateofjobseparationorjobfindingalsochangesthenaturalrateofunemployment.Slide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.6-2JobSearchandFrictionalUnemploymentTheunemploymentcausedbythetimeittakesworkerstosearchforajobiscalledfrictionalunemployment.(preferencesandabilities;asectorshift)Publicpolicyandfrictionalunemployment(retrainingprogram,unemploymentinsurance)StructureunemploymentCasestudy:UnemploymentInsuranceandtheRateofJobFindingConclusion:Theincentivesprovidedbytheunemployment-insurancesystemaffecttherateofjobfinding.6-3Real-WageRigidityandWaitUnemploymentReal-wagerigidityistothefailureofwagestoadjustuntillaborsupplyequalslabordemand.Theunemploymentresultingfromwageandjobrationingiscalledwaitunemployment.Threecausesofthewagerigidity:

Minimum-wagelaws,themonopolypowerofunions,andefficiencywages.Minimum-WageLawsMinimum-WageLawssetalegalminimumonthewagesthatfirmspaytheiremployees.Economistsbelievethattheminimumwagehasitsgreatest

impactonteenage

unemployment.Theminimumwageisaperennialsourceofpoliticaldebate.Manyeconomistsandpolicymakersbelievethattaxcreditsareabetterwaytoincreasetheincomesoftheworkingpoor.Slide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.UnionsandCollectiveBargainingThewagesofunionizedworkersaredeterminednotbytheequilibriumofsupplyanddemandbutbycollectivebargainingbetweenunionleadersandfirmmanagement.Mostfirmsdislikeunions.Unionsnotonlyraisewagesbutalsoincreasethebargainingpoweroflaboronmanyotherissues,suchashoursofemploymentandworkingconditions.Theunemploymentcausedbyunionsandbythethreatofunionizationisaninstanceofconflictbetweendifferentgroupsofworkers—insidersandoutsiders.Theconflictbetweeninsidersandoutsidersisresolveddifferentlyindifferentcountries.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.EfficiencywagesThesetheoriesholdthathighwagesmakeworkersmoreproductive.Fourkindsofefficiency-wagetheories:(1)Wagesinfluencenutrition.(LDC)(2)Highwagesreducelaborturnover.(3)Adverseselection.(4)Moralhazard.CaseStudy:HenryFord’s$5Workday“Fordandhisassociatesfreelydeclaredonmanyoccasionsthatthehighwagepolicyhadturnedouttobegoodbusiness.Bythistheymeantthatithadimprovedthedisciplineoftheworkers,giventhemamoreloyalinterestintheinstitution,andraisedtheirpersonalefficiency.”PatternsofUnemploymentThedurationofunemploymentVariationintheunemploymentrateacrossdemographicgroupsTrendsinU.SunemploymentTransitionsintoandoutofthelaborforceTheriseinEuropeanunemployment（“thedole”）Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide6Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.ThetypesofunemploymentUnemploymentNaturalunemploymentFrictionalunemploymentStructureunemploymentVoluntaryunemploymentCycleunemploymentUn-voluntaryunemploymentIntheMarketEconomyNaturalunemploymentFrictionalunemploymentStructureunemploymentVoluntaryunemploymentInTransitionEconomyUnemploymentNaturalunemploymentDisguisedunemploymentTransitionunemploymentChapter7MoneyandInflationInthischapterweexaminetheclassicaltheoryofthecauses,effects,andsocialcostsofinflation.WhatismoneyThequantitytheoryofmoneySeigniorage（铸币税）:therevenuefromprintingmoneyInflationandinterestratesThenominalinterestrateandthedemandformoneyThesocialcostsofinflationHyperinflationConclusion:theclassicaldichotomy(两分法）7-1WhatismoneyMoneyisthestockofassetsthatcanbereadilyusedtomaketransactions.ThefunctionsofmoneyThetypesofmoneyHowfiatmoneyevolvesHowthequantityofmoneyiscontrolledHowthequantityofmoneyismeasuredThefunctionsofmoneyAstoreofvalue,moneyisawaytotransferpurchasingpowerfromthepresenttothefuture.Aunitofaccount,moneyprovidesthetermsinwhichpricesarequotedanddebtsarerecorded.Amediumofexchange,moneyiswhatweusetobygoodsandservices.Thetypesofmoney

Fiatmoney:Moneythathasnointrinsicvalueiscalledfiatmoneybecauseitisestablishedasmoneybygovernmentdecree,orfiat.Commoditymoney:Moneythathasintrinsicvalueiscalledcommodity,suchasgold.HowfiatmoneyevolvesThegovernmentmightfirstgetinvolvedinthemoneysystemtohelppeoplereducetransactioncosts.Thenextstepisforthegovernmenttoacceptgoldfromthepublicinexchangeforgoldcertificates—piecesofpaperthatcanberedeemedforacertainquantityofgold.Finally,thegoldbackingbecomesirrelvant.Howthequantityofmoneyiscontrolled

Thequantityofmoneyavailableiscalledthemoneysupply.Thecontroloverthemoneysupplyiscallmonetarypolicy.ThecentralbankoftheUnitedStatesistheFederalReserve—oftencalledtheFed.ThecentralbankofChinaistheChinesePeople’sBankTheprimarywayinwhichtheFedcontrolsthesupplyofmoneyisthroughopen-marketoperations—thepurchaseandsaleofgovernmentbonds.Howthequantityofmoneyismeasured

M0＝papermoney+coins=CurrencyM1=M0+demanddepositsM2=M1+personaltimedepositsM3=M2+non-personaltermdepositsanddepositsinforeigncurrencySlide1Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.7-2TheQuantityTheoryofMoneyTransactionsandthequantityequationFromtransactionstoincomeThemoneydemandfunctionandthequantityequationTheassumptionofconstantvelocityMoney,prices,andinflationTransactionsandthequantityequationThequantityequation:

Money×Velocity=Price×TransactionsM×V=P×TV=PT/MFromtransactionstoincomeMoney×Velocity=Price×OutputM×V=P×YViscalledtheincomevelocityofmoney.Themoneydemandfunctionandthequantityequation

M/Piscalledrealmoneybalances.Amoneydemandfunction:(M/P)d=kYThisequationstatesthatthequantityofrealmoneybalancesdemandedisproportionaltorealmoney.Thedemandforrealmoneybalances(M/P)dmustequalthesupplyM/P:(M/P)=kYM(1/k)=PYMV=PYV=1/KThemoneydemandparameterkandthevelocityofmoneyvareoppositesidesofthesamecoin.TheassumptionofconstantvelocityOnceweassumethatvelocityisconstant,thequantityequationcanbeseenasatheoryofwhatdeterminesnominalGDP.MV’=PYIfvelocityisfixed,thequantityofmoneydeterminesthedollarvalueoftheeconomy’soutput.Money,prices,andinflation

Thequantitytheoryhasthreebuildingblocks:1.ThefactorsofproductionandtheproductionfunctiondeterminethelevelofoutputY.2.Themoneysupplydeterminesthenominalvalueofoutput,PY.ThepricelevelPisthentheratioofthenominalvalueofoutput,PY,tothelevelofoutputY.%changeinM+%changeinV=%changeinP+%changeinYSlide2Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide3Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.7-3Seigniorage:therevenuefromprintingmoneyAgovernmentcanfinanceitsspendinginthreeways.First,itcanraiserevenuethroughtaxes,suchaspersonalandcorporateincometaxes.Second,Itcanborrowfromthepublicbysellinggovernmentbonds.Third,itcansimplyprintmoney.Therevenueraisedthroughtheprintingofmoneyiscallseigniorage.Printingmoneytoraiserevenueislikeimposinganinflationtax.7-4InflationandInterestRatesTwointerestrates:realandnominalr=i-

TheFishereffecti=r+Theone-for-onerelationbetweentheinflationrateandthenominalinterestrateiscalledtheFishereffect.Tworealinterestrates:exanterealinterestrateandexpostrealinterestrate.TheFishereffectismorepreciselywrittenas:i=r+’(expectedinflationrate)Thenominalinterestrateimovesone-for-onewithchangesinexpectedinflation’.Slide4Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.Slide5Mankiw:Macroeconomics,4/e©byWorthPublishers,Inc.7-5TheNominalInterestRateandtheDemandforMoneyThecostofholdingmoneyFuturemoneyandcurrentpricesThecostofholdingmoneyThenominalinterestrateistheopportunitycostofholdingmoney,itiswhatyougiveupbyholdingmoneyratherthanbonds.Themoneydemandfunction:(M/P)d=L(i,Y)Futuremoneyandcurrentprices

M/P=L(i,Y)M/P=L(r+

’,Y)Thisequationstatesthatthelevelofrealmoneybalancesdependsontheexpectedrateofinflation.Thisgeneralmoneydemandequat