Beruflich Dokumente
Kultur Dokumente
CHAPTER7
Prepared by:
Fernando Quijano and Yvonn Quijano
Macroeconomics, 4/e
Olivier Blanchard
7-1
Aggregate Supply
W P e F (u, z)
P (1 )W
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Aggregate Supply
P P (1 ) F (u, z)
e
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Aggregate Supply
1
1
L
L
L
L
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Aggregate Supply
P P (1 ) F 1 , z
L
In words, the price level depends on the
expected price level, Pe, and the level of output,
Y (and also , z, and L, but we take those as
constant here).
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Aggregate Supply
P P (1 ) F 1 , z
L
e
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Aggregate Supply
P P (1 ) F 1 , z
L
e
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Aggregate Supply
Figure 7 - 1
The Aggregate Supply
Curve
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Aggregate Supply
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Aggregate Supply
Figure 7 - 2
The Effect of an
Increase in the
Expected Price Level
on the Aggregate
Supply Curve
An increase in the
expected price level
shifts the aggregate
supply curve up.
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Aggregate Supply
Lets summarize:
Starting from wage determination and price
determination in the labor market, we have
derived the aggregate supply relation.
This means that for a given expected price
level, the price level is an increasing function
of the level of output. It is represented by an
upward-sloping curve, called the aggregate
supply curve.
Increases in the expected price level shift the
aggregate supply curve up; decreases in the
expected price level shift the aggregate supply
curve down.
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7-2
Aggregate Demand
M
LM relation:
YL(i )
P
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Aggregate Demand
Figure 7 - 3
The Derivation of the
Aggregate Demand
Curve
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Aggregate Demand
Y Y
, G, T
P
( , , )
The IS curve is downward sloping, the LM
curve is upward sloping.
The negative relation between output and the
price level is drawn as the downward-sloping
curve AD.
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Aggregate Demand
Figure 7 - 4
Shifts of the Aggregate
Demand Curve
An increase in
government spending
increases output at a
given price level, shifting
the aggregate demand
curve to the right. A
decrease in nominal
money decreases output
at a given price level,
shifting the aggregate
demand curve to the left.
Y Y
, G, T
P
( , , )
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Aggregate Demand
Lets summarize:
Starting from the equilibrium conditions for the
goods and financial markets, we have derived
the aggregate demand relation.
This relation implies that the level of output is
a decreasing function of the price level. It is
represented by a downward-sloping curve,
called the aggregate demand curve.
Changes in monetary or fiscal policy or more
generally in any variable, other than the price
level, that shifts the IS or the LM curves shift
the aggregate demand curve.
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7-3
AS Relation P P (1 ) F 1 , z
L
e
AD Relation Y Y
, G, T
P
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Figure 7 - 5
The Short Run
Equilibrium
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At point A,
Y Yn P P e
Wage setters will revise
upward their expectations
of the future price level.
This will cause the AS curve
to shift upward.
Expectation of a higher
price level also leads to a
higher nominal wage, which
in turn leads to a higher
price level.
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Figure 7 - 6
The Adjustment of Output
over Time
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7-4
The Effects of a
Monetary Expansion
M
Y Y
, G, T
P
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Figure 7 - 7
The Dynamic Effects of a
Monetary Expansion
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The impact of a
monetary expansion
on the interest rate
can be illustrated by
the IS-LM model.
The short-run effect
of the monetary
expansion is to shift
the LM curve down.
The interest rate is
lower, output is
higher.
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Figure 7 - 8
The Dynamic Effects of a
Monetary Expansion on Output
and the Interest Rate
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7-5
A Decrease in
the Budget Deficit
Figure 7 - 9
The Dynamic Effects of a
Decrease in the Budget
Deficit
A decrease in the
budget deficit leads
initially to a decrease
in output. Over time,
output returns to the
natural level of output.
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Figure 1
The Effects of an
Expansion in
Nominal Money in
the Taylor Model
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Figure 7 - 10
The Dynamic Effects of a
Decrease in the Budget
Deficit on Output and the
Interest Rate
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7-6
Figure 7 - 11
The Price of Crude
Petroleum since 1960
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Figure 7 - 12
The Effects of an
Increase in the Price
of Oil on the Natural
Rate of
Unemployment
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P P (1 ) F 1 , z
L
An increase in the markup, , caused by an
increase in the price of oil, results in an increase
in the price level, at any level of output, Y. The
aggregate supply curve shifts up.
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Figure 7 - 13
The Dynamic Effects of an
Increase in the Price of Oil
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Table 7-1
1974
1975
10.4
51.8
15.1
5.6
9.0
9.4
5.8
0.6
0.4
4.9
5.6
8.5
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Conclusions
7-7
Monetary
expansion
increase
Medium Run
Interest
Rate
Price
Level
Output
Level
Interest
Rate
Price
Level
decrease
increase
(small)
no change
no change
increase
no change
decrease
decrease
decrease
increase
increase
Deficit
reduction
decrease
decrease
decrease
(small)
Increase
in oil price
decrease
increase
increase
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Conclusions
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Key Terms
output fluctuations,
business cycles,
shocks,
propagation mechanism,
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