SHORT-RUN ECONOMIC FLUCTUATIONS

Содержание

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33

Aggregate Demand and Aggregate Supply

33 Aggregate Demand and Aggregate Supply

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Short-Run Economic Fluctuations

Economic activity fluctuates from year to year.
In most years production

Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In most
of goods and services rises.
On average over the past 50 years, production in the U.S. economy has grown by about 3 percent per year.
In some years normal growth does not occur, causing a recession.

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Short-Run Economic Fluctuations

A recession is a period of declining real incomes, and

Short-Run Economic Fluctuations A recession is a period of declining real incomes,
rising unemployment.
A depression is a severe recession.

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THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS

Economic fluctuations are irregular and unpredictable.
Fluctuations in

THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS Economic fluctuations are irregular and unpredictable.
the economy are often called the business cycle.
Most macroeconomic variables fluctuate together.
As output falls, unemployment rises.

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Figure 1 A Look At Short-Run Economic Fluctuations

Billions of

1996 Dollars

Real GDP

(a) Real

Figure 1 A Look At Short-Run Economic Fluctuations Billions of 1996 Dollars
GDP

$10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1965

1970

1975

1980

1985

1990

1995

2000

Copyright © 2004 South-Western

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THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS

Most macroeconomic variables fluctuate together.
Most macroeconomic variables

THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS Most macroeconomic variables fluctuate together. Most
that measure some type of income or production fluctuate closely together.
Although many macroeconomic variables fluctuate together, they fluctuate by different amounts.

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Figure 1 A Look At Short-Run Economic Fluctuations

Billions of

1996 Dollars

(b) Investment Spending

$1,800

1,600

1,400

1,200

1,000

800

600

400

200

1965

1970

1975

1980

1985

1990

1995

2000

Investment

Figure 1 A Look At Short-Run Economic Fluctuations Billions of 1996 Dollars
spending

Copyright © 2004 South-Western

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THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS

As output falls, unemployment rises.
Changes in real

THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONS As output falls, unemployment rises. Changes
GDP are inversely related to changes in the unemployment rate.
During times of recession, unemployment rises substantially.

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Figure 1 A Look At Short-Run Economic Fluctuations

Percent of

Labor Force

(c) Unemployment Rate

0

2

4

6

8

10

12

1965

1970

1975

1980

1985

1990

1995

2000

Unemployment

Figure 1 A Look At Short-Run Economic Fluctuations Percent of Labor Force
rate

Copyright © 2004 South-Western

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EXPLAINING SHORT-RUN ECONOMIC FLUCTUATIONS

How the Short Run Differs from the Long Run
Most

EXPLAINING SHORT-RUN ECONOMIC FLUCTUATIONS How the Short Run Differs from the Long
economists believe that classical theory describes the world in the long run but not in the short run.
Changes in the money supply affect nominal variables but not real variables in the long run.
The assumption of monetary neutrality is not appropriate when studying year-to-year changes in the economy.

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The Basic Model of Economic Fluctuations

Two variables are used to develop a

The Basic Model of Economic Fluctuations Two variables are used to develop
model to analyze the short-run fluctuations.
The economy’s output of goods and services measured by real GDP.
The overall price level measured by the CPI or the GDP deflator.

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The Basic Model of Economic Fluctuations

The Basic Model of Aggregate Demand

The Basic Model of Economic Fluctuations The Basic Model of Aggregate Demand
and Aggregate Supply
Economist use the model of aggregate demand and aggregate supply to explain short-run fluctuations in economic activity around its long-run trend.

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The Basic Model of Economic Fluctuations

The Basic Model of Aggregate Demand

The Basic Model of Economic Fluctuations The Basic Model of Aggregate Demand
and Aggregate Supply
The aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level.

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The Basic Model of Economic Fluctuations

The Basic Model of Aggregate Demand

The Basic Model of Economic Fluctuations The Basic Model of Aggregate Demand
and Aggregate Supply
The aggregate-supply curve shows the quantity of goods and services that firms choose to produce and sell at each price level.

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Figure 2 Aggregate Demand and Aggregate Supply...

Quantity of

Output

Price

Level

0

Copyright © 2004 South-Western

Figure 2 Aggregate Demand and Aggregate Supply... Quantity of Output Price Level

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THE AGGREGATE-DEMAND CURVE

The four components of GDP (Y) contribute to the aggregate

THE AGGREGATE-DEMAND CURVE The four components of GDP (Y) contribute to the
demand for goods and services.
Y = C + I + G + NX

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Figure 3 The Aggregate-Demand Curve...

Quantity of

Output

Price

Level

0

Copyright © 2004 South-Western

Figure 3 The Aggregate-Demand Curve... Quantity of Output Price Level 0 Copyright © 2004 South-Western

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Why the Aggregate-Demand Curve Is Downward Sloping

The Price Level and Consumption: The

Why the Aggregate-Demand Curve Is Downward Sloping The Price Level and Consumption:
Wealth Effect
The Price Level and Investment: The Interest Rate Effect
The Price Level and Net Exports: The Exchange-Rate Effect

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Why the Aggregate-Demand Curve Is Downward Sloping

The Price Level and Consumption: The

Why the Aggregate-Demand Curve Is Downward Sloping The Price Level and Consumption:
Wealth Effect
A decrease in the price level makes consumers feel more wealthy, which in turn encourages them to spend more.
This increase in consumer spending means larger quantities of goods and services demanded.

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Why the Aggregate-Demand Curve Is Downward Sloping

The Price Level and Investment: The

Why the Aggregate-Demand Curve Is Downward Sloping The Price Level and Investment:
Interest Rate Effect
A lower price level reduces the interest rate, which encourages greater spending on investment goods.
This increase in investment spending means a larger quantity of goods and services demanded.

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Why the Aggregate-Demand Curve Is Downward Sloping

The Price Level and Net Exports:

Why the Aggregate-Demand Curve Is Downward Sloping The Price Level and Net
The Exchange-Rate Effect
When a fall in the U.S. price level causes U.S. interest rates to fall, the real exchange rate depreciates, which stimulates U.S. net exports.
The increase in net export spending means a larger quantity of goods and services demanded.

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Why the Aggregate-Demand Curve Might Shift

The downward slope of the aggregate demand

Why the Aggregate-Demand Curve Might Shift The downward slope of the aggregate
curve shows that a fall in the price level raises the overall quantity of goods and services demanded.
Many other factors, however, affect the quantity of goods and services demanded at any given price level.
When one of these other factors changes, the aggregate demand curve shifts.

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Why the Aggregate-Demand Curve Might Shift

Shifts arising from
Consumption
Investment
Government Purchases
Net Exports

Why the Aggregate-Demand Curve Might Shift Shifts arising from Consumption Investment Government Purchases Net Exports

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Shifts in the Aggregate Demand Curve

0

P1

Y1

Shifts in the Aggregate Demand Curve 0 P1 Y1

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THE AGGREGATE-SUPPLY CURVE

In the long run, the aggregate-supply curve is vertical.
In the

THE AGGREGATE-SUPPLY CURVE In the long run, the aggregate-supply curve is vertical.
short run, the aggregate-supply curve is upward sloping.

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THE AGGREGATE-SUPPLY CURVE

The Long-Run Aggregate-Supply Curve
In the long run, an economy’s production

THE AGGREGATE-SUPPLY CURVE The Long-Run Aggregate-Supply Curve In the long run, an
of goods and services depends on its supplies of labor, capital, and natural resources and on the available technology used to turn these factors of production into goods and services.
The price level does not affect these variables in the long run.

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Figure 4 The Long-Run Aggregate-Supply Curve

Quantity of

Output

Natural rate

of output

Price

Level

0

Copyright © 2004 South-Western

Figure 4 The Long-Run Aggregate-Supply Curve Quantity of Output Natural rate of

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THE AGGREGATE-SUPPLY CURVE

The Long-Run Aggregate-Supply Curve
The long-run aggregate-supply curve is vertical at

THE AGGREGATE-SUPPLY CURVE The Long-Run Aggregate-Supply Curve The long-run aggregate-supply curve is
the natural rate of output.
This level of production is also referred to as potential output or full-employment output.

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Why the Long-Run Aggregate-Supply Curve Might Shift

Any change in the economy that

Why the Long-Run Aggregate-Supply Curve Might Shift Any change in the economy
alters the natural rate of output shifts the long-run aggregate-supply curve.
The shifts may be categorized according to the various factors in the classical model that affect output.

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Why the Long-Run Aggregate-Supply Curve Might Shift

Shifts arising
Labor
Capital
Natural Resources
Technological Knowledge

Why the Long-Run Aggregate-Supply Curve Might Shift Shifts arising Labor Capital Natural Resources Technological Knowledge

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Figure 5 Long-Run Growth and Inflation

Quantity of

Output

Price

Level

0

Copyright © 2004 South-Western

Figure 5 Long-Run Growth and Inflation Quantity of Output Price Level 0 Copyright © 2004 South-Western

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A New Way to Depict Long-Run Growth and Inflation

Short-run fluctuations in output

A New Way to Depict Long-Run Growth and Inflation Short-run fluctuations in
and price level should be viewed as deviations from the continuing long-run trends.

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Why the Aggregate-Supply Curve Slopes Upward in the Short Run

In the short

Why the Aggregate-Supply Curve Slopes Upward in the Short Run In the
run, an increase in the overall level of prices in the economy tends to raise the quantity of goods and services supplied.
A decrease in the level of prices tends to reduce the quantity of goods and services supplied.

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Figure 6 The Short-Run Aggregate-Supply Curve

Quantity of

Output

Price

Level

0

Copyright © 2004 South-Western

Figure 6 The Short-Run Aggregate-Supply Curve Quantity of Output Price Level 0 Copyright © 2004 South-Western

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Why the Aggregate-Supply Curve Slopes Upward in the Short Run

The Misperceptions Theory
The

Why the Aggregate-Supply Curve Slopes Upward in the Short Run The Misperceptions
Sticky-Wage Theory
The Sticky-Price Theory

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Why the Aggregate-Supply Curve Slopes Upward in the Short Run

The Misperceptions Theory
Changes

Why the Aggregate-Supply Curve Slopes Upward in the Short Run The Misperceptions
in the overall price level temporarily mislead suppliers about what is happening in the markets in which they sell their output:
A lower price level causes misperceptions about relative prices.
These misperceptions induce suppliers to decrease the quantity of goods and services supplied.

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Why the Aggregate-Supply Curve Slopes Upward in the Short Run

The Sticky-Wage Theory
Nominal

Why the Aggregate-Supply Curve Slopes Upward in the Short Run The Sticky-Wage
wages are slow to adjust, or are “sticky” in the short run:
Wages do not adjust immediately to a fall in the price level.
A lower price level makes employment and production less profitable.
This induces firms to reduce the quantity of goods and services supplied.

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The Sticky-Price Theory

Prices of some goods and services adjust sluggishly in response

The Sticky-Price Theory Prices of some goods and services adjust sluggishly in
to changing economic conditions:
An unexpected fall in the price level leaves some firms with higher-than-desired prices.
This depresses sales, which induces firms to reduce the quantity of goods and services they produce.

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Why the Short-Run Aggregate-Supply Curve Might Shift

Shifts arising
Labor
Capital
Natural Resources.
Technology.
Expected Price Level.

Why the Short-Run Aggregate-Supply Curve Might Shift Shifts arising Labor Capital Natural

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Why the Aggregate Supply Curve Might Shift

An increase in the expected price

Why the Aggregate Supply Curve Might Shift An increase in the expected
level reduces the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the left.
A decrease in the expected price level raises the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the right.

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Figure 7 The Long-Run Equilibrium

Quantity of

Output

Price

Level

0

Copyright © 2004 South-Western

Figure 7 The Long-Run Equilibrium Quantity of Output Price Level 0 Copyright © 2004 South-Western

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Figure 8 A Contraction in Aggregate Demand

Quantity of

Output

Price

Level

0

Long-run

aggregate

supply

Copyright © 2004 South-Western

Figure 8 A Contraction in Aggregate Demand Quantity of Output Price Level

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TWO CAUSES OF ECONOMIC FLUCTUATIONS

Shifts in Aggregate Demand
In the short run, shifts

TWO CAUSES OF ECONOMIC FLUCTUATIONS Shifts in Aggregate Demand In the short
in aggregate demand cause fluctuations in the economy’s output of goods and services.
In the long run, shifts in aggregate demand affect the overall price level but do not affect output.

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TWO CAUSES OF ECONOMIC FLUCTUATIONS

An Adverse Shift in Aggregate Supply
A decrease

TWO CAUSES OF ECONOMIC FLUCTUATIONS An Adverse Shift in Aggregate Supply A
in one of the determinants of aggregate supply shifts the curve to the left:
Output falls below the natural rate of employment.
Unemployment rises.
The price level rises.

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Figure 10 An Adverse Shift in Aggregate Supply

Quantity of

Output

Price

Level

0

Long-run

aggregate

supply

Copyright © 2004 South-Western

Figure 10 An Adverse Shift in Aggregate Supply Quantity of Output Price

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The Effects of a Shift in Aggregate Supply

Stagflation
Adverse shifts in aggregate supply

The Effects of a Shift in Aggregate Supply Stagflation Adverse shifts in
cause stagflation—a period of recession and inflation.
Output falls and prices rise.
Policymakers who can influence aggregate demand cannot offset both of these adverse effects simultaneously.

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The Effects of a Shift in Aggregate Supply

Policy Responses to Recession
Policymakers may

The Effects of a Shift in Aggregate Supply Policy Responses to Recession
respond to a recession in one of the following ways:
Do nothing and wait for prices and wages to adjust.
Take action to increase aggregate demand by using monetary and fiscal policy.

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Figure 11 Accommodating an Adverse Shift in Aggregate Supply

Quantity of

Output

Natural rate

of output

Price

Level

0

Long-run

aggregate

supply

Aggregate

Figure 11 Accommodating an Adverse Shift in Aggregate Supply Quantity of Output
demand,

AD

Copyright © 2004 South-Western

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Summary

All societies experience short-run economic fluctuations around long-run trends.
These fluctuations are

Summary All societies experience short-run economic fluctuations around long-run trends. These fluctuations
irregular and largely unpredictable.
When recessions occur, real GDP and other measures of income, spending, and production fall, and unemployment rises.

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Summary

Economists analyze short-run economic fluctuations using the aggregate demand and aggregate supply

Summary Economists analyze short-run economic fluctuations using the aggregate demand and aggregate
model.
According to the model of aggregate demand and aggregate supply, the output of goods and services and the overall level of prices adjust to balance aggregate demand and aggregate supply.

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Summary

The aggregate-demand curve slopes downward for three reasons: a wealth effect, an

Summary The aggregate-demand curve slopes downward for three reasons: a wealth effect,
interest rate effect, and an exchange rate effect.
Any event or policy that changes consumption, investment, government purchases, or net exports at a given price level will shift the aggregate-demand curve.

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Summary

In the long run, the aggregate supply curve is vertical.
The short-run, the

Summary In the long run, the aggregate supply curve is vertical. The
aggregate supply curve is upward sloping.
The are three theories explaining the upward slope of short-run aggregate supply: the misperceptions theory, the sticky-wage theory, and the sticky-price theory.

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Summary

Events that alter the economy’s ability to produce output will shift the

Summary Events that alter the economy’s ability to produce output will shift
short-run aggregate-supply curve.
Also, the position of the short-run aggregate-supply curve depends on the expected price level.
One possible cause of economic fluctuations is a shift in aggregate demand.
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