Tải bản đầy đủ

Economics 3rd ch09

Economics
THIRD EDITION

By John B. Taylor
Stanford University

Copyright © 2001 by H

1


Chapter 24 (Macro 11)
The Economic
Fluctuations Model
Copyright © 2001 by H

2


Overview
• The main purpose of this chapter is to

provide an explanation of the dynamics of
economic fluctuations, particularly inflation
and real GDP. The economic fluctuations
model is constructed by first deriving the
aggregate demand/inflation curve and then
the price adjustment line. The model can be
used to study the determination of real GDP
and the price level.

Copyright © 2001 by H

3


Teaching Objectives
1. Explain that a basic set of factors causes
real GDP to depart and return to potential
over the business cycle.
2. Introduce interest rates and inflation into
the dynamics of the business cycle.
3. Describe the important role that policy
can play in altering the course of business
cycles. This is done through a policy rule
that relates interest rates to aggregate
expenditure.
Copyright © 2001 by H

4


Teaching Objectives
4. Explain the primary factors that determine
location of the ADI curve. This occurs through the
components of aggregate spending that are
sensitive to interest rates (spending balance) and
the policy rule.
5. Explain the factors that shift the ADI curve:
Changes of the policy rule and changes in
government spending, along with autonomous
shocks to aggregate spending, determine the
location of the ADI curve.
Copyright © 2001 by H

5


Teaching Objectives
• 6. Introduce the microeconomic basis of price
adjustment.
7. Explain the PA line and the factors that cause it
to shift.
8. Explain how the intersection of the ADI curve
and the PA line determines the level of equilibrium
real GDP and the inflation rate at some point in
time in the economy.

Copyright © 2001 by H

6


Key Terms






aggregate demand/inflation ( ADI ) curve
target inflation rate
monetary policy rule
price adjustment ( PA ) line
federal funds rate

Copyright © 2001 by H

7


1. The Aggregate Demand/Inflation Curve

• The ADI curve shows that there is an
inverse (negative) relationship between
inflation changes and the corresponding
changes in real GDP.
• When inflation increases, real GDP
declines.
• When inflation slows down, real GDP goes
up.
• Real GDP = C + I + G + X = AE
Copyright © 2001 by H

8


Figure 24.1
(Macro 11)
The Aggregate
Demand Curve

Copyright © 2001 by H

9


Between Inflation Interest Rate and Real GDP

Copyright © 2001 by H

10


Showing Relation of
Interest Rate to
Investment

Copyright © 2001 by H

11


STAGE I: Interest rate and Investment

• As real (inflation-adjusted) interest rate
goes up, cost of borrowing goes up, so that
business investment (buying a new machine
or extending business) and housing
investment declines.
• As real interest rate declines, investment
goes up, because the cost of investment
declines

Copyright © 2001 by H

12


Showing Relation of
Interest Rate to Net
Exports

Copyright © 2001 by H

13


Interest Rate and Net Exports
• If US interest rates increase, it becomes
more attractive to invest in the US,
compared to other countries such as Canada
or Mexico, our top trading partners.
• This raises the demand for US dollars and
appreciates the US dollar against other
currencies like Canadian $s or Mexican
pesos.
• This hurts our exports but raises our
imports.
Copyright © 2001 by H

14


Interest Rate and Consumption Expenditures

• Evidence indicates that consumption is less
sensitive to interest rate changes than
investment and net exports
• In general, higher interest rates encourage
people to save more (consume less),
indicating an inverse relationship between
interest rates and consumption
• Figure 24.2 shows the net impact.
Copyright © 2001 by H

15


Figure 24.2
(Macro 11)
The Interest Rate, Spending Balance, and Real GDP

Copyright © 2001 by H

16


STAGE II: Interest Rates and Inflation
• So far we have seen how real interest rates
affect real GDP.
• Now we want to study how inflation affects
interest rates.
• Real interest rate = nominal interest rates
minus expected inflation rate
• Note that it is the real interest rate that we
use to decide about our spending plans
Copyright © 2001 by H

17


Central Banks and Inflation
• When inflation increases (declines), the Fed
raises (lowers) the nominal interest rates.
This is called the “policy rule”
• Higher inflation signals a rise in aggregate
expenditures. Central banks raise nominal
interest rates more than the inflation rate, so
that the real interest rate increases.
• Higher real interest rates lower AE and
slows down inflation
Copyright © 2001 by H

18


Figure 24.3
(Macro 11)
A Monetary Policy Rule

Copyright © 2001 by H

19


Monetary Policy Rule
• The monetary policy rule in Figure 24.3
shows that central banks raise the interest
rate when inflation rises and lower it when
inflation declines.
• The dashed line has a slope of 1. Monetary
policy rule has a bigger slope: Nominal
interest rate is increased by more than
inflation, so that the real interest changes.
• Note that AE decisions depend on “real”
rate.
Copyright © 2001 by H

20


STAGE 3: Deriving AD curve
• When inflation increases, two things happen:
(1) Central banks raise the nominal interest rate
more than inflation, raising the real interest rate
(2) The higher real interest rate will decrease
real GDP because of lower AE
• Just the opposite happens when inflation
decreases
• Thus, AD curve shows a negative link between
real interest rates and real GDP

Copyright © 2001 by H

21


Figure 24.4
(Macro 11)
A Self-Guided
Graphical Overview

Copyright © 2001 by H

22


Movements along the AD curve
• A change in inflation causes a movement
along the demand curve
• When inflation rises and the Fed raises the
interest rate and real GDP declines. This
causes a movement up and to the left along
the AD curve.
• When inflation decreases, there is a
movement down and to the right.
Copyright © 2001 by H

23


Shifts of the AD curve
• Besides inflation, other things affects
aggregate demand.
• When such non-inflation determinants of
AD curve changes, we say that there is a
“shift” in the AD curve.
• Changes in government purchases, shifts in
monetary policy, changes in taxes, shifts in
demand for next exports, changes consumer
confidence, among others, affect AD.
Copyright © 2001 by H

24


Figure 24.5
(Macro 11) How
Government
Purchases Shift the
Aggregate Demand
Curve

Copyright © 2001 by H

25


Tài liệu bạn tìm kiếm đã sẵn sàng tải về

Tải bản đầy đủ ngay

×

×