第24章货币和财政政策的影响课件.ppt

1、The Influence of Monetary and Fiscal Policy on Aggregate Demand241CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYCHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICY本章要解决的问题：本章要解决的问题：How does the interest-rate effect help explain the slope of the AD curve?How can the central bank use moneta

2、ry policy to shift the AD curve?In what two ways does fiscal policy affect AD?What are the arguments for and against using policy to try to stabilize the economy?2CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYIntroductionEarlier chapters covered:the long-run effects of fiscal policy on inter

3、est rates,investment,economic growththe long-run effects of monetary policy on the price level and inflation rateThis chapter focuses on the short-run effects of fiscal and monetary policy,which work through aggregate demand.3CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYAggregate DemandReca

4、ll,the AD curve slopes downward for three reasons:the wealth effectthe interest-rate effectthe exchange-rate effectNext:a supply-demand model that helps explain the interest-rate effect and how monetary policy affects aggregate demand.the most important of these effects for the U.S.economy4CHAPTER 2

5、4 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Theory of Liquidity PreferenceA simple theory of the interest rate(denoted r)r adjusts to balance supply and demand for moneyMoney supply:assume fixed by central bank,does not depend on interest rate5CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POL

6、ICYThe Theory of Liquidity PreferenceMoney demand reflects how much wealth people want to hold in liquid form.For simplicity,suppose household wealth includes only two assets:Money liquid but pays no interestBonds pay interest but not as liquidA households“money demand”reflects its preference for li

7、quidity.The variables that influence money demand:Y,r,and P.6CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYMoney DemandSuppose real income(Y)rises.Other things equal,what happens to money demand?If Y rises:Households want to buy more g&s,so they need more money.To get this money,they attempt

8、 to sell some of their bonds.I.e.,an increase in Y causes an increase in money demand,other things equal.A.Suppose r rises,but Y and P are unchanged.What happens to money demand?B.Suppose P rises,but Y and r are unchanged.What happens to money demand?7A.Suppose r rises,but Y and P are unchanged.What

9、 happens to money demand?r is the opportunity cost of holding money.An increase in r reduces money demand:Households attempt to buy bonds to take advantage of the higher interest rate.Hence,an increase in r causes a decrease in money demand,other things equal.8B.Suppose P rises,but Y and r are uncha

10、nged.What happens to money demand?If Y is unchanged,people will want to buy the same amount of g&s.Since P is higher,they will need more money to do so.Hence,an increase in P causes an increase in money demand,other things equal.910CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYHow r Is Deter

11、minedMS curve is vertical:Changes in r do not affect MS,which is fixed by the Fed.MD curve is downward sloping:a fall in r increases money demand.MInterest rateMSMD1r1Quantity fixed by the FedEqm interest rate11CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYHow the Interest-Rate Effect WorksY

12、PMInterest rateADMSMD1MD2P2P1Y1Y2r2r1A fall in P reduces money demand,which lowers r.A fall in r increases I and the quantity of g&s demanded.12CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYMonetary Policy and Aggregate DemandTo achieve macroeconomic goals,the Fed can use monetary policy to

13、shift the AD curve.The Feds policy instrument is MS.The news often reports that the Fed targets the interest rate.more precisely,the federal funds rate which banks charge each other on short-term loans To change the interest rate and shift the AD curve,the Fed conducts open market operations to chan

14、ge MS.13CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Effects of Reducing the Money SupplyYPMInterest rateAD1MS1MDP1Y1r1MS2r2AD2Y2The Fed can raise r by reducing the money supply.An increase in r reduces the quantity of g&s demanded.For each of the events below,-determine the short-run e

15、ffects on output -determine how the Fed should adjust the money supply and interest rates to stabilize outputA.Congress tries to balance the budget by cutting govt spending.B.A stock market boom increases household wealth.C.War breaks out in the Middle East,causing oil prices to soar.14A.Congress tr

16、ies to balance the budget by cutting govt spending.This event would reduce agg demand and output.To offset this event,the Fed should increase MS and reduce r to increase agg demand.15B.A stock market boom increases household wealth.This event would increase agg demand,raising output above its natura

17、l rate.To offset this event,the Fed should reduce MS and increase r to reduce agg demand.16C.War breaks out in the Middle East,causing oil prices to soar.This event would reduce agg supply,causing output to fall.To offset this event,the Fed should increase MS and reduce r to increase agg demand.1718

18、CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYFiscal Policy and Aggregate DemandFiscal policy:the setting of the level of govt spending and taxation by govt policymakersExpansionary fiscal policyan increase in G and/or decrease in Tshifts AD rightContractionary fiscal policya decrease in G a

19、nd/or increase in Tshifts AD leftFiscal policy has two effects on AD.19CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICY1.The Multiplier EffectIf the govt buys$20b of planes from Boeing,Boeings revenue increases by$20b.This is distributed to Boeings workers(as wages)and owners(as profits or sto

20、ck dividends).These people are also consumers,and will spend a portion of the extra income.This extra consumption causes further increases in aggregate demand.Multiplier effect:the additional shifts in AD that result when fiscal policy increases income and thereby increases consumer spending20CHAPTE

21、R 24 THE INFLUENCE OF MONETARY AND FISCAL POLICY1.The Multiplier EffectA$20b increase in G initially shifts AD to the right by$20b.The increase in Y causes C to rise,which shifts AD further to the right.YPAD1P1AD2AD3Y1Y3Y2$20 billion21CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYMarginal Pr

22、opensity to ConsumeHow big is the multiplier effect?It depends on how much consumers respond to increases in income.Marginal propensity to consume(MPC):the fraction of extra income that households consume rather than saveE.g.,if MPC=0.8 and income rises$100,C rises$80.22CHAPTER 24 THE INFLUENCE OF M

23、ONETARY AND FISCAL POLICYNotation:G is the change in G,Y and C are the ultimate changes in Y and C Y=C+I+G+NXidentity Y=C+G I and NX do not change Y=MPC Y+Gbecause C=MPC Y solved for Y11 MPC Y=GA Formula for the MultiplierThe multiplier23CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe size

24、 of the multiplier depends on MPC.e.g.,if MPC=0.5 multiplier=2if MPC=0.75 multiplier=4if MPC=0.9 multiplier=1011 MPC Y=GA Formula for the MultiplierThe multiplierA bigger MPC means changes in Y cause bigger changes in C,which in turn cause more changes in Y.24CHAPTER 24 THE INFLUENCE OF MONETARY AND

25、 FISCAL POLICYOther Applications of the Multiplier EffectThe multiplier effect:each$1 increase in G can generate more than a$1 increase in agg demand.Also true for the other components of GDP.Example:Suppose a recession overseas reduces demand for U.S.net exports by$10b.Initially,agg demand falls by

26、$10b.The fall in Y causes C to fall,which further reduces agg demand and income.25CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICY2.The Crowding-Out EffectFiscal policy has another effect on AD that works in the opposite direction.A fiscal expansion raises r,which reduces investment,which redu

27、ces the net increase in agg demand.So,the size of the AD shift may be smaller than the initial fiscal expansion.This is called the crowding-out effect.26CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYHow the Crowding-Out Effect WorksYPMInterest rateAD1MSMD2MD1P1r1r2A$20b increase in G initial

28、ly shifts AD right by$20bBut higher Y increases MD and r,which reduces AD.AD3AD2Y1Y2$20 billionY327CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYChanges in TaxesA tax cut increases households take-home pay.Households respond by spending a portion of this extra income,shifting AD to the right

29、.The size of the shift is affected by the multiplier and crowding-out effects.Another factor:whether households perceive the tax cut to be temporary or permanent.A permanent tax cut causes a bigger increase in C and a bigger shift in the AD curve than a temporary tax cut.The economy is in recession.

30、Shifting the AD curve rightward by$200b would end the recession.A.If MPC=.8 and there is no crowding out,how much should Congress increase G to end the recession?B.If there is crowding out,will Congress need to increase G more or less than this amount?28The economy is in recession.Shifting the AD cu

31、rve rightward by$200b would end the recession.A.If MPC=0.8 and there is no crowding out,how much should Congress increase G to end the recession?Multiplier=1/(1 0.8)=5Increase G by$40b to shift agg demand by 5 x$40b =$200b.29The economy is in recession.Shifting the AD curve rightward by$200b would e

32、nd the recession.B.If there is crowding out,will Congress need to increase G more or less than this amount?Crowding out reduces the impact of G on AD.To offset this,Congress should increase G by a larger amount.3031CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYFiscal Policy and Aggregate Sup

33、plyMost economists believe the short-run effects of fiscal policy mainly work through agg demand.But fiscal policy might also affect agg supply.Recall one of the Ten Principles from Chap 1:People respond to incentives.A cut in the tax rate gives workers incentive to work more,so it might increase th

34、e quantity of g&s supplied and shift AS to the right.People who believe this effect is large are called“Supply-siders.”32CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYFiscal Policy and Aggregate SupplyGovt purchases might affect agg supply.Example:Govt increases spending on roads.Better road

35、s may increase business productivity,which increases the quantity of g&s supplied,shifts AS to the right.This effect is probably more relevant in the long run:it takes time to build the new roads and put them into use.33CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYUsing Policy to Stabilize

36、the EconomySince the Employment Act of 1946,economic stabilization has been a goal of U.S.policy.Economists debate how active a role the govt should take to stabilize the economy.34CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Case for Active Stabilization PolicyKeynes:“animal spirits”ca

37、use waves of pessimism and optimism among households and firms,leading to shifts in aggregate demand and fluctuations in output and employment.Also,other factors cause fluctuations,e.g.,booms and recessions abroadstock market booms and crashes If policymakers do nothing,these fluctuations are destab

38、ilizing to businesses,workers,consumers.35CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Case for Active Stabilization PolicyProponents of active stabilization policy believe the govt should use policy to reduce these fluctuations:When GDP falls below its natural rate,use expansionary mon

39、etary or fiscal policy to prevent or reduce a recession.When GDP rises above its natural rate,use contractionary policy to prevent or reduce an inflationary boom.36CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Case Against Active Stabilization PolicyMonetary policy affects economy with a

40、 long lag:firms make investment plans in advance,so I takes time to respond to changes in r most economists believe it takes at least 6 months for mon policy to affect output and employmentFiscal policy also works with a long lag:Changes in G and T require Acts of Congress.The legislative process ca

41、n take months or years.37CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYThe Case Against Active Stabilization PolicyDue to these long lags,critics of active policy argue that such policies may destabilize the economy rather than help it:By the time the policies affect agg demand,the economys

42、condition may have changed.These critics contend that policymakers should focus on long-run goals,like economic growth and low inflation.38CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYAutomatic StabilizersAutomatic stabilizers:changes in fiscal policy that stimulate agg demand when economy

43、goes into recession,without policymakers having to take any deliberate action39CHAPTER 24 THE INFLUENCE OF MONETARY AND FISCAL POLICYAutomatic Stabilizers:ExamplesThe tax systemIn recession,taxes fall automatically,which stimulates agg demand.Govt spendingIn recession,more people apply for public assistance(welfare,unemployment insurance).Govt spending on these programs automatically rises,which stimulates agg demand.