宏觀經(jīng)濟學(xué)英文課件：ch11 Aggregate Demand II Applying the IS-LM Model

1、S E V E N T H E D I T I O N1CHAPTER 11 Aggregate Demand IIContextChapter 9 introduced the model of aggregate demand and supply. Chapter 10 developed the IS-LM model, the basis of the aggregate demand curve.how to use the IS-LM model to analyze the effects of shocks, fiscal policy, and monetary polic

2、yhow to derive the aggregate demand curve from the IS-LM modelseveral theories about what caused the Great Depression3CHAPTER 11 Aggregate Demand IIThe intersection determines the unique combination of Y and r that satisfies equilibrium in both markets.The LM curve represents money market equilibriu

3、m.Equilibrium in the IS -LM modelThe IS curve represents equilibrium in the goods market.()( )YC YTI rG( ,)M PL r YISY rLMr1Y14CHAPTER 11 Aggregate Demand IIPolicy analysis with the IS -LM modelWe can use the IS-LM model to analyze the effects of fiscal policy: G and/or T monetary policy: M()( )YC Y

4、TI rG( ,)M PL r YISY rLMr1Y15CHAPTER 11 Aggregate Demand IIcausing output & income to rise. IS1An increase in government purchases1. IS curve shifts right Y rLMr1Y11by 1 MPCGIS2Y2r21.2. This raises money demand, causing the interest rate to rise2.3. which reduces investment, so the final increase in

5、 Y1is smaller than 1 MPCG3.6CHAPTER 11 Aggregate Demand IIIS11.A tax cutY rLMr1Y1IS2Y2r2Consumers save (1MPC) of the tax cut, so the initial boost in spending is smaller for T than for an equal G and the IS curve shifts byMPC1 MPCT1.2.2.so the effects on r and Y are smaller for T than for an equal G

6、. 2.7CHAPTER 11 Aggregate Demand II2. causing the interest rate to fall ISMonetary policy: An increase in M1. M 0 shifts the LM curve down(or to the right)Y rLM1r1Y1Y2r2LM23. which increases investment, causing output & income to rise. 8CHAPTER 11 Aggregate Demand IIInteraction between monetary & fi

7、scal policyModel: Monetary & fiscal policy variables (M, G, and T ) are exogenous.Real world: Monetary policymakers may adjust M in response to changes in fiscal policy, or vice versa.Such interaction may alter the impact of the original policy change. 9CHAPTER 11 Aggregate Demand IIThe Feds respons

8、e to G 0Suppose Congress increases G.Possible Fed responses:1. hold M constant2. hold r constant3. hold Y constantIn each case, the effects of the G are different 10CHAPTER 11 Aggregate Demand IIIf Congress raises G, the IS curve shifts right.IS1Response 1: Hold M constantY rLM1r1Y1IS2Y2r2If Fed hol

9、ds M constant, then LM curve doesnt shift.Results:21YYY21rrr11CHAPTER 11 Aggregate Demand IIIf Congress raises G, the IS curve shifts right.IS1Response 2: Hold r constantY rLM1r1Y1IS2Y2r2To keep r constant, Fed increases M to shift LM curve right.31YYY0rLM2Y3Results:12CHAPTER 11 Aggregate Demand III

10、S1Response 3: Hold Y constantY rLM1r1IS2Y2r2To keep Y constant, Fed reduces M to shift LM curve left.0Y31rrrLM2Results:Y1r3If Congress raises G, the IS curve shifts right.13CHAPTER 11 Aggregate Demand IIEstimates of fiscal policy multipliersfrom the DRI macroeconometric modelAssumption about monetar

11、y policyEstimated value of Y / G Fed holds nominal interest rate constantFed holds money supply constant1.930.60Estimated value of Y / T 1.19 0.2614CHAPTER 11 Aggregate Demand IIShocks in the IS -LM modelIS shocks: exogenous changes in the demand for goods & services. Examples: stock market boom or

12、crash change in households wealth C change in business or consumer confidence or expectations I and/or C15CHAPTER 11 Aggregate Demand IIShocks in the IS -LM modelLM shocks: exogenous changes in the demand for money. Examples:a wave of credit card fraud increases demand for money.more ATMs or the Int

13、ernet reduce money demand.NOW YOU TRY: Analyze shocks with the IS-LM ModelUse the IS-LM model to analyze the effects of1. a boom in the stock market that makes consumers wealthier.2. after a wave of credit card fraud, consumers using cash more frequently in transactions.For each shock, a. use the IS

14、-LM diagram to show the effects of the shock on Y and r.b. determine what happens to C, I, and the unemployment rate.17CHAPTER 11 Aggregate Demand IICASE STUDY: The U.S. recession of 2001During 2001, 2.1 million jobs lost, unemployment rose from 3.9% to 5.8%.GDP growth slowed to 0.8% (compared to 3.

15、9% average annual growth during 1994-2000). 18CHAPTER 11 Aggregate Demand IICASE STUDY: The U.S. recession of 2001Causes: 1) Stock market decline C30060090012001500199519961997199819992000200120022003Index (1942 = 100)Standard & Poors 50019CHAPTER 11 Aggregate Demand IICASE STUDY: The U.S. recession

16、 of 2001Causes: 2) 9/11increased uncertaintyfall in consumer & business confidenceresult: lower spending, IS curve shifted leftCauses: 3) Corporate accounting scandalsEnron, WorldCom, etc. reduced stock prices, discouraged investment20CHAPTER 11 Aggregate Demand IICASE STUDY: The U.S. recession of 2

17、001Fiscal policy response: shifted IS curve righttax cuts in 2001 and 2003spending increases airline industry bailout NYC reconstruction Afghanistan war21CHAPTER 11 Aggregate Demand IICASE STUDY: The U.S. recession of 2001Monetary policy response: shifted LM curve rightThree-month T-Bill Rate0123456

18、701/01/200004/02/200007/03/200010/03/200001/03/200104/05/200107/06/200110/06/200101/06/200204/08/200207/09/200210/09/200201/09/200304/11/200322CHAPTER 11 Aggregate Demand IIWhat is the Feds policy instrument?The news media commonly report the Feds policy changes as interest rate changes, as if the F

19、ed has direct control over market interest rates. In fact, the Fed targets the federal funds rate the interest rate banks charge one another on overnight loans. The Fed changes the money supply and shifts the LM curve to achieve its target. Other short-term rates typically move with the federal fund

20、s rate.23CHAPTER 11 Aggregate Demand IIWhat is the Feds policy instrument?Why does the Fed target interest rates instead of the money supply?1) They are easier to measure than the money supply.2) The Fed might believe that LM shocks are more prevalent than IS shocks. If so, then targeting the intere

21、st rate stabilizes income better than targeting the money supply. (See end-of-chapter Problem 7 on p.337.)24CHAPTER 11 Aggregate Demand IIIS-LM and aggregate demandSo far, weve been using the IS-LM model to analyze the short run, when the price level is assumed fixed. However, a change in P would sh

22、ift LM and therefore affect Y. The aggregate demand curve (introduced in Chap. 9) captures this relationship between P and Y.25CHAPTER 11 Aggregate Demand IIY1Y2Deriving the AD curveY rY PISLM(P1)LM(P2)ADP1P2Y2Y1r2r1Intuition for slope of AD curve:P (M/P ) LM shifts left r I Y 26CHAPTER 11 Aggregate

23、 Demand IIMonetary policy and the AD curveY PISLM(M2/P1)LM(M1/P1)AD1P1Y1Y1Y2Y2r1r2The Fed can increase aggregate demand:M LM shifts rightAD2Y r r I Y at each value of P27CHAPTER 11 Aggregate Demand IIY2Y2r2Y1Y1r1Fiscal policy and the AD curveY rY PIS1LMAD1P1Expansionary fiscal policy (G and/or T ) i

24、ncreases agg. demand:T C IS shifts right Y at each value of PAD2IS228CHAPTER 11 Aggregate Demand IIIS-LM and AD-AS in the short run & long runRecall from Chapter 9: The force that moves the economy from the short run to the long run is the gradual adjustment of prices.YYYYYYrisefallremain constantIn

25、 the short-run equilibrium, ifthen over time, the price level will29CHAPTER 11 Aggregate Demand IIThe SR and LR effects of an IS shockA negative IS shock shifts IS and AD left, causing Y to fall. Y rY PLRASYLRASYIS1SRAS1P1LM(P1)IS2AD2AD130CHAPTER 11 Aggregate Demand IIThe SR and LR effects of an IS

26、shockY rY PLRASYLRASYIS1SRAS1P1LM(P1)IS2AD2AD1In the new short-run equilibrium, YY31CHAPTER 11 Aggregate Demand IIThe SR and LR effects of an IS shockY rY PLRASYLRASYIS1SRAS1P1LM(P1)IS2AD2AD1In the new short-run equilibrium, YYOver time, P gradually falls, causingSRAS to move downM/P to increase, wh

27、ich causes LM to move down 32CHAPTER 11 Aggregate Demand IIAD2The SR and LR effects of an IS shockY rY PLRASYLRASYIS1SRAS1P1LM(P1)IS2AD1SRAS2P2LM(P2)Over time, P gradually falls, causingSRAS to move downM/P to increase, which causes LM to move down 33CHAPTER 11 Aggregate Demand IIAD2SRAS2P2LM(P2)The

28、 SR and LR effects of an IS shockY rY PLRASYLRASYIS1SRAS1P1LM(P1)IS2AD1This process continues until economy reaches a long-run equilibrium with YYNOW YOU TRY: Analyze SR & LR effects of Ma.Draw the IS-LM and AD-AS diagrams as shown here. b.Suppose Fed increases M. Show the short-run effects on your

29、graphs. c.Show what happens in the transition from the short run to the long run. d.How do the new long-run equilibrium values of the endogenous variables compare to their initial values? Y rY PLRASYLRASYISSRAS1P1LM(M1/P1)AD1The Great DepressionUnemployment (right scale)Real GNP(left scale)120140160

30、180200220240192919311933193519371939billions of 1958 dollars051015202530percent of labor force36CHAPTER 11 Aggregate Demand IITHE SPENDING HYPOTHESIS: Shocks to the IS curveasserts that the Depression was largely due to an exogenous fall in the demand for goods & services a leftward shift of the IS

31、curve.evidence: output and interest rates both fell, which is what a leftward IS shift would cause.37CHAPTER 11 Aggregate Demand IITHE SPENDING HYPOTHESIS: Reasons for the IS shiftStock market crash exogenous C Oct-Dec 1929: S&P 500 fell 17%Oct 1929-Dec 1933: S&P 500 fell 71%Drop in investment“corre

32、ction” after overbuilding in the 1920swidespread bank failures made it harder to obtain financing for investmentContractionary fiscal policyPoliticians raised tax rates and cut spending to combat increasing deficits.38CHAPTER 11 Aggregate Demand IITHE MONEY HYPOTHESIS: A shock to the LM curveasserts

33、 that the Depression was largely due to huge fall in the money supply.evidence: M1 fell 25% during 1929-33. But, two problems with this hypothesis:P fell even more, so M/P actually rose slightly during 1929-31. nominal interest rates fell, which is the opposite of what a leftward LM shift would caus

34、e. 39CHAPTER 11 Aggregate Demand IITHE MONEY HYPOTHESIS AGAIN: The effects of falling pricesasserts that the severity of the Depression was due to a huge deflation:P fell 25% during 1929-33. This deflation was probably caused by the fall in M, so perhaps money played an important role after all.In w

35、hat ways does a deflation affect the economy?40CHAPTER 11 Aggregate Demand IITHE MONEY HYPOTHESIS AGAIN: The effects of falling pricesThe stabilizing effects of deflation:P (M/P ) LM shifts right YPigou effect: P (M/P ) consumers wealth C IS shifts right Y41CHAPTER 11 Aggregate Demand IITHE MONEY HY

36、POTHESIS AGAIN: The effects of falling pricesThe destabilizing effects of expected deflation: E r for each value of iI because I = I (r ) planned expenditure & agg. demand income & output 42CHAPTER 11 Aggregate Demand IITHE MONEY HYPOTHESIS AGAIN: The effects of falling pricesThe destabilizing effec

37、ts of unexpected deflation:debt-deflation theoryP (if unexpected) transfers purchasing power from borrowers to lenders borrowers spend less, lenders spend more if borrowers propensity to spend is larger than lenders, then aggregate spending falls, the IS curve shifts left, and Y falls43CHAPTER 11 Ag

38、gregate Demand IIWhy another Depression is unlikelyPolicymakers (or their advisors) now know much more about macroeconomics:The Fed knows better than to let M fall so much, especially during a contraction.Fiscal policymakers know better than to raise taxes or cut spending during a contraction.Federa

39、l deposit insurance makes widespread bank failures very unlikely.Automatic stabilizers make fiscal policy expansionary during an economic downturn.44CHAPTER 11 Aggregate Demand IICASE STUDYThe 2008-09 Financial Crisis & Recession2009: Real GDP fell, u-rate approached 10%Important factors in the cris

40、is:early 2000s Federal Reserve interest rate policy sub-prime mortgage crisisbursting of house price bubble, rising foreclosure ratesfalling stock pricesfailing financial institutionsdeclining consumer confidence, drop in spending on consumer durables and investment goodsInterest rates and house pri

41、ces5070901101301501701900123456789200020012002200320042005House price index, 2000=100interest rate (%)Federal Funds rate30-year mortgage rateCase-Shiller 20-city composite house price indexChange in U.S. house price index and rate of new foreclosures, 1999-20090.00.81.01.21.4-6%-4%-2%0%2%4%

42、6%8%10%12%14%199920012003200520072009New foreclosure starts (% of total mortgages)Percent change in house prices (from 4 quarters earlier)US house price indexNew foreclosuresHouse price change and new foreclosures, 2006:Q3 2009Q10%2%4%6%8%10%12%14%16%18%20%-35%-30%-25%-20%-15%-10%-5%0%5%10%15%New foreclosures, % of all mortgagesCumulative change in house price indexNevadaGeorgiaColoradoTexasAlaskaWyomingArizonaCaliforniaFloridaS. DakotaIll