1、12 SHORT-RUN ECONOMIC FLUCTUATIONS33Aggregate Demand and Aggregate SupplyShort-Run Economic FluctuationsEconomic activity fluctuates from year to year.In most years production of goods and services rises.On average over the past 50 years, production in the U.S. economy has grown by about 3 percent p

2、er year.In some years normal growth does not occur, causing a recession. Short-Run Economic FluctuationsA recession is a period of declining real incomes, and rising unemployment.A depression is a severe recession.THREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONSEconomic fluctuations are irregular and unp

3、redictable.Fluctuations in the economy are often called the business cycle.Figure 1 A Look At Short-Run Economic FluctuationsBillions of1996 DollarsReal GDP(a) Real GDP$10,0009,0008,0007,0006,0005,0004,0003,0002,00019651970197519801985199019952000Copyright 2004 South-WesternTHREE KEY FACTS ABOUT ECO

4、NOMIC FLUCTUATIONSMost macroeconomic variables fluctuate together.Most macroeconomic variables that measure some type of income or production fluctuate closely together. Although many macroeconomic variables fluctuate together, they fluctuate by different amounts.Figure 1 A Look At Short-Run Economi

5、c FluctuationsBillions of1996 Dollars(b) Investment Spending$1,8001,6001,4001,2001,00080060040020019651970197519801985199019952000Investment spendingCopyright 2004 South-WesternTHREE KEY FACTS ABOUT ECONOMIC FLUCTUATIONSAs output falls, unemployment rises.Changes in real GDP are inversely related to

6、 changes in the unemployment rate.During times of recession, unemployment rises substantially.Figure 1 A Look At Short-Run Economic FluctuationsPercent ofLabor Force(c) Unemployment Rate02468101219651970197519801985199019952000Unemployment rateCopyright 2004 South-WesternEXPLAINING SHORT-RUN ECONOMI

7、C FLUCTUATIONSHow the Short Run Differs from the Long RunMost 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

8、 appropriate when studying year-to-year changes in the economy.The Basic Model of Economic FluctuationsTwo variables are used to develop a model to analyze the short-run fluctuations.The economys output of goods and services measured by real GDP.The overall price level measured by the CPI or the GDP

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

10、sic Model of Aggregate Demand and Aggregate SupplyThe aggregate-demand curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level.The aggregate-supply curve shows the quantity of goods and services that firms choose to produce and sell a

11、t each price level.Figure 2 Aggregate Demand and Aggregate Supply.Quantity ofOutputPriceLevel0AggregatesupplyAggregatedemandEquilibriumoutputEquilibriumprice levelCopyright 2004 South-WesternTHE AGGREGATE-DEMAND CURVEThe four components of GDP (Y) contribute to the aggregate demand for goods and ser

12、vices.Y = C + I + G + NXFigure 3 The Aggregate-Demand Curve.Quantity ofOutputPriceLevel0AggregatedemandPYY2P21. A decreasein the pricelevel . . .2. . . . increases the quantity ofgoods and services demanded.Copyright 2004 South-WesternWhy the Aggregate-Demand Curve Is Downward SlopingThe Price Level

13、 and Consumption: The Wealth EffectThe Price Level and Investment: The Interest Rate EffectThe Price Level and Net Exports: The Exchange-Rate EffectWhy the Aggregate-Demand Curve Is Downward SlopingThe Price Level and Consumption: The Wealth EffectA decrease in the price level makes consumers feel m

14、ore wealthy, which in turn encourages them to spend more. This increase in consumer spending means larger quantities of goods and services demanded.Why the Aggregate-Demand Curve Is Downward SlopingThe Price Level and Investment: The Interest Rate EffectA lower price level reduces the interest rate,

15、 which encourages greater spending on investment goods.This increase in investment spending means a larger quantity of goods and services demanded.Why the Aggregate-Demand Curve Is Downward SlopingThe Price Level and Net Exports: The Exchange-Rate EffectWhen a fall in the U.S. price level causes U.S

16、. 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.Why the Aggregate-Demand Curve Might ShiftThe downward slope of the aggregate demand curve shows that a fall in t

17、he 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.Why the Aggregate-Demand Curve Might ShiftShi

18、fts arising from ConsumptionInvestmentGovernment PurchasesNet ExportsShifts in the Aggregate Demand CurveQuantity ofOutputPriceLevel0Aggregatedemand, D1P1Y1D2Y2 THE AGGREGATE-SUPPLY CURVEIn the long run, the aggregate-supply curve is vertical.In the short run, the aggregate-supply curve is upward sl

19、oping.THE AGGREGATE-SUPPLY CURVEThe Long-Run Aggregate-Supply CurveIn the long run, an economys production 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 pric

20、e level does not affect these variables in the long run.Figure 4 The Long-Run Aggregate-Supply CurveQuantity ofOutputNatural rateof outputPriceLevel0Long-runaggregatesupplyP21. A changein the pricelevel . . .2. . . . does not affect the quantity of goods and services supplied in the long run.PCopyri

21、ght 2004 South-WesternTHE AGGREGATE-SUPPLY CURVEThe Long-Run Aggregate-Supply CurveThe long-run aggregate-supply curve is vertical at the natural rate of output.This level of production is also referred to as potential output or full-employment output.Why the Long-Run Aggregate-Supply Curve Might Sh

22、iftAny change in the economy that 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.Why the Long-Run Aggregate-Supply Curve Might ShiftShifts arising LaborCapitalNatura

23、l ResourcesTechnological KnowledgeFigure 5 Long-Run Growth and InflationQuantity ofOutputY1980AD1980AD1990Aggregate Demand, AD2000PriceLevel0Long-runaggregatesupply,LRAS1980Y1990LRAS1990Y2000LRAS2000P19801. In the long run,technological progress shifts long-run aggregate supply . . .4. . . . andongo

24、ing inflation.3. . . . leading to growthin output . . .P1990P20002. . . . and growth in the money supply shifts aggregate demand . . .Copyright 2004 South-WesternA New Way to Depict Long-Run Growth and InflationShort-run fluctuations in output and price level should be viewed as deviations from the

25、continuing long-run trends.Why the Aggregate-Supply Curve Slopes Upward in the Short RunIn the short 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 s

26、ervices supplied.Figure 6 The Short-Run Aggregate-Supply CurveQuantity ofOutputPriceLevel0Short-runaggregatesupply1. A decreasein the pricelevel . . .2. . . . reduces the quantityof goods and servicessupplied in the short run.YPY2P2Copyright 2004 South-WesternWhy the Aggregate-Supply Curve Slopes Up

27、ward in the Short RunThe Misperceptions TheoryThe Sticky-Wage TheoryThe Sticky-Price TheoryWhy the Aggregate-Supply Curve Slopes Upward in the Short RunThe Misperceptions TheoryChanges in the overall price level temporarily mislead suppliers about what is happening in the markets in which they sell

28、their output:A lower price level causes misperceptions about relative prices.These misperceptions induce suppliers to decrease the quantity of goods and services supplied.Why the Aggregate-Supply Curve Slopes Upward in the Short RunThe Sticky-Wage TheoryNominal wages are slow to adjust, or are “stic

29、ky” 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.The Sticky-Price TheoryPrices of some goods and services adjust sluggishly in

30、 response 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.Why the Short-Run Aggregate-Supply Curve Might ShiftShifts arising La

31、borCapitalNatural Resources.Technology.Expected Price Level.Why the Aggregate Supply Curve Might ShiftAn increase in the expected price 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

32、the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the right.Figure 7 The Long-Run EquilibriumNatural rateof outputQuantity ofOutputPriceLevel0Short-runaggregatesupplyLong-runaggregatesupplyAggregatedemandAEquilibriumpriceCopyright 2004 South-WesternFigure

33、 8 A Contraction in Aggregate DemandQuantity ofOutputPriceLevel0Short-run aggregatesupply, ASLong-runaggregatesupplyAggregatedemand, ADAPYAD2AS21. A decrease inaggregate demand . . .2. . . . causes output to fall in the short run . . .3. . . . but over time, the short-runaggregate-supplycurve shifts

34、 . . .4. . . . and output returnsto its natural rate.CP3BP2Y2Copyright 2004 South-WesternTWO CAUSES OF ECONOMIC FLUCTUATIONSShifts in Aggregate DemandIn the short run, shifts in aggregate demand cause fluctuations in the economys output of goods and services.In the long run, shifts in aggregate dema

35、nd affect the overall price level but do not affect output.TWO CAUSES OF ECONOMIC FLUCTUATIONS An Adverse Shift in Aggregate SupplyA decrease 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 lev

36、el rises.Figure 10 An Adverse Shift in Aggregate SupplyQuantity ofOutputPriceLevel0Aggregate demand3. . . . and the price level to rise.2. . . . causes output to fall . . .1. An adverse shift in the short-run aggregate-supply curve . . .Short-runaggregatesupply, ASLong-runaggregatesupplyYAPAS2BY2P2C

37、opyright 2004 South-WesternThe Effects of a Shift in Aggregate SupplyStagflationAdverse shifts in aggregate supply cause stagflationa period of recession and inflation.Output falls and prices rise.Policymakers who can influence aggregate demand cannot offset both of these adverse effects simultaneou

38、sly.The Effects of a Shift in Aggregate SupplyPolicy Responses to RecessionPolicymakers may 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.Figure 11 Accommodating an A

39、dverse Shift in Aggregate SupplyQuantity ofOutputNatural rateof outputPriceLevel0Short-runaggregatesupply, ASLong-runaggregatesupplyAggregate demand, ADP2APAS23. . . . whichcauses theprice level to rise further . . .4. . . . but keeps outputat its natural rate.2. . . . policymakers canaccommodate th

40、e shiftby expanding aggregatedemand . . .1. When short-run aggregatesupply falls . . .AD2CP3Copyright 2004 South-WesternSummaryAll societies experience short-run economic fluctuations around long-run trends. These fluctuations are irregular and largely unpredictable.When recessions occur, real GDP and other measures of income, spending, and producti