1、Prepared by:Fernando Quijano and Yvonn QuijanoThe Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardThe Goods MarketCHAPTER 3CHAPTER 3Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroe
2、conomics, 5/e Olivier BlanchardMOTIVATING QUESTIONMOTIVATING QUESTION1. How is output determined in the short run?Output is determined by equilibrium in the goods market by the condition that supply equals demand. This condition always determines output, but in the short run, we assume that producti
3、on adjusts automatically to output without changes in price.in the short run, output is effectively determined by demand.in this chapter, investment is exogenous (and therefore independent of the interest rate), so there is no need to consider simultaneous equilibrium in the goods and financial mark
4、ets.2 of 32Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard9-3IntroductionOne of the central questions in macroeconomics is why output fluctuates around its potential level In business cycle booms and recessions, outp
5、ut rises and falls relative to the trend of potential outputThis chapter offers a first theory of these fluctuations in real output relative to trend Cornerstone of this model is the mutual interaction between output and spending: spending determines output and income, but output and income also det
6、ermine spendingThe Keynesian model of income determination develops the theory of AD Assume that prices do not change at all and that firms are willing to sell any amount of output at the given level of prices AS curve is flatChapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishi
7、ng as Prentice Hall Macroeconomics, 5/e Olivier BlanchardThe Keynesian Cross Keynes ：in the short run，an economys total income was determined largely by the spending plans of households, businesses, and government. Actual expenditure is the amount households, firms, and the government spend on goods
8、 and services Planned expenditure is the amount households, firms, and the government would like to spend on goods and services. actual expenditure differ from planned expenditure. Why? firms might engage in unplanned inventory investment because their sales do not meet their expectations4 of 32Chap
9、ter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardThe Keynesian Crossa simple modelA simple closed economy model in which income is determined by expenditure. (due to J.M. Keynes)Notation: I = planned investmentE = C + I +
10、G = planned expenditureY = real GDP = actual expenditureDifference between actual & planned expenditure = unplanned inventory investmentChapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardElements of the Keynesian Cross()
11、CC YTII,GGTT()EC YTIGYEconsumption function:for now, planned investment is exogenous:planned expenditure:equilibrium condition:govt policy variables:actual expenditure = planned expenditureChapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5
12、/e Olivier BlanchardGraphing planned expenditureincome, output, Y EplannedexpenditureE =C +I +G MPC1Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardGraphing the equilibrium conditionincome, output, Y Eplannedexpenditu
13、reE =Y 45Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardThe equilibrium value of incomeincome, output, Y EplannedexpenditureE =Y E =C +I +G Equilibrium incomeChapter 3: The Goods MarketCopyright 2009 Pearson Educatio
14、n, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier BlanchardThe Keynesian Crossmore details10 of 32Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard11 of 323-1 The Composition of GDPConsumption (C) refers
15、to the goods and services purchased by consumers.Investment (I), sometimes called fixed investment, is the purchase of capital goods. It is the sum of nonresidential investment and residential investment.Government Spending (G) refers to the purchases of goods and services by the federal, state, and
16、 local governments. It does not include government transfers, nor interest payments on the government debt.Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard12 of 323-1 The Composition of GDPImports (IM) are the purchas
17、es of foreign goods and services by consumers, business firms, and the U.S. government.Exports (X) are the purchases of U.S. goods and services by foreigners.Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard13 of 323-1
18、 The Composition of GDPInventory investment is the difference between production and sales.Net exports (X IM) is the difference between exports and imports, also called the trade balance.Exports imports trade surplusExports G, the government is running a budget surpluspublic saving is positive.If T
19、G, the government is running a budget deficitpublic saving is negative.Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard34 of 32The equation above states that equilibrium in the goods market requires that investment eq
20、uals savingthe sum of private plus public saving.This equilibrium condition for the goods market is called the IS relation. What firms want to invest must be equal to what people and the government want to save.ISTG()3-4 Investment Equals Saving: An Alternative Way 3-4 Investment Equals Saving: An A
21、lternative Way of Thinking about Goods-Market Equilibriumof Thinking about Goods-Market EquilibriumChapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard35 of 32Consumption and saving decisions are one and the same.SYTC01()
22、SYTcc YTSccYT 011 ()()The term (1 c1) is called the propensity to save.01111YcIGcTcIccYTTG 011 ()()()Investment Equals Saving: An AlternativeInvestment Equals Saving: An AlternativeWay of Thinking about Goods-Market EquilibriumWay of Thinking about Goods-Market EquilibriumChapter 3: The Goods Market
23、Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard36 of 32The Paradox of SavingThe paradox of saving (or the paradox of thrift) is that as people attempt to save more, the result is both a decline in output and unchanged saving.Chapter 3: The Goo
24、ds MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard37 of 323-5 Is the Government Omnipotent?A WarningChanging government spending or taxes is not always easy.The responses of consumption, investment, imports, etc, are hard to assess with
25、much certainty.Anticipations are likely to matter.Achieving a given level of output can come with unpleasant side effects.Budget deficits and public debt may have adverse implications in the long run.Chapter 3: The Goods MarketCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroe
26、conomics, 5/e Olivier Blanchard38 of 32Key TermsConsumption (C)Investment (I)Fixed investmentNonresidential investmentResidential investmentGovernment spending (G)Government transfersImports (IM)Exports (X)Net exports (X-IM)Trade balanceTrade surplusTrade deficitInventory investmentIdentityDisposabl
27、e income (YD)Consumption functionBehavioral equationLinear relationParameterPropensity to consume (c1)Endogenous variablesExogenous variablesFiscal policyEquilibriumEquilibrium in the goods marketEquilibrium conditionAutonomous spendingBalanced budgetMultiplierGeometric seriesEconometricsDynamicsForecast errorConsumer confidence indexPrivate saving (S)Public saving (T-G)Budget surplusBudget deficitSavingIS relationPropensity to saveParadox of saving
