1、macroeconomics fifth editionN. Gregory MankiwPowerPoint Slides by Ron Cronovichmacro 2002 Worth Publishers, all rights reservedCHAPTER THIRTEENAggregate Supplyslide 1three models of aggregate supply in which output depends positively on the price level in the short runthe short-run tradeoff between
2、inflation and unemployment known as the Phillips curveslide 21.The sticky-wage model2.The imperfect-information model3.The sticky-price modelAll three models imply:()eYYPP natural rate of outputa positive parameterthe expected price levelthe actual price levelagg. outputslide 3Assumes that firms and
3、 workers negotiate contracts and fix the nominal wage before they know what the price level will turn out to be. The nominal wage, W, they set is the product of a target real wage, , and the expected price level:eWPeWPPPslide 4If it turns out thateWPPPePPePPePPthenunemployment and output are at thei
4、r natural ratesReal wage is less than its target, so firms hire more workers and output rises above its natural rateReal wage exceeds its target, so firms hire fewer workers and output falls below its natural rateslide 5Real wage, W/PIncome, output, YPrice level, PIncome, output, YLabor, LLabor, LW/
5、P1W/P2L 5 Ld(W/P)L2L1Y2Y1Y 5 F(L)L2L1P2P1Y 5 Y 1 a(P 2 P e)Y2Y11. An increase in the price level .3. . .which raises employment, .4. . . output, .5. . . and income.2. . reduces the real wage for a given nominal wage, .6. The aggregatesupply curvesummarizes these changes.(a) Labor Demand(a) Labor Dem
6、and(b) Production Function(b) Production Function(c) Aggregate Supply(c) Aggregate Supplyslide 6Implies that the real wage should be counter-cyclical , it should move in the opposite direction as output over the course of business cycles: In booms, when P typically rises, the real wage should fall.
7、In recessions, when P typically falls, the real wage should rise. This prediction does not come true in the real world:slide 7Percentage change in realwagePercentage change in real GDP1982197519931992196019961999199719981979197019801991197419901984200019721965-3-2-10123786544 3 2 1 0 -1 -2-3 -4 -5sl
8、ide 8Assumptions: all wages and prices perfectly flexible, all markets clear each supplier produces one good, consumes many goods each supplier knows the nominal price of the good she produces, but does not know the overall price levelslide 9Supply of each good depends on its relative price: the nom
9、inal price of the good divided by the overall price level.Supplier doesnt know price level at the time she makes her production decision, so uses the expected price level, P e. Suppose P rises but P e does not. Then supplier thinks her relative price has risen, so she produces more. With many produc
10、ers thinking this way, Y will rise whenever P rises above P e. slide 10Reasons for sticky prices: long-term contracts between firms and customers menu costs firms do not wish to annoy customers with frequent price changesAssumption: Firms set their own prices (e.g. as in monopolistic competition)sli
11、de 11An individual firms desired price is where a 0. Suppose two types of firms: firms with flexible prices, set prices as above firms with sticky prices, must set their price before they know how P and Y will turn out:()pPYYa()eeepPYYaslide 12Assume firms w/ sticky prices expect that output will eq
12、ual its natural rate. Then,()eeepPYYaepPTo derive the aggregate supply curve, we first find an expression for the overall price level. Let s denote the fraction of firms with sticky prices. Then, we can write the overall price level as slide 13Subtract (1s )P from both sides:(1)()ePs PsPYYaprice set
13、 by flexible price firmsprice set by sticky price firms(1) ()esPs PsYYaDivide both sides by s :(1)()esPPYYsaslide 14High P e High PIf firms expect high prices, then firms who must set prices in advance will set them high.Other firms respond by setting high prices.High Y High P When income is high, t
14、he demand for goods is high. Firms with flexible prices set high prices. The greater the fraction of flexible price firms, the smaller is s and the bigger is the effect of Y on P. (1)()esPPYYsaslide 15Finally, derive AS equation by solving for Y :(1)()esPPYYsa(),eYYPP where (1)ssa slide 16In contras
15、t to the sticky-wage model, the sticky-price model implies a procyclical real wage:Suppose aggregate output/income falls. Then, Firms see a fall in demand for their products. Firms with sticky prices reduce production, and hence reduce their demand for labor. The leftward shift in labor demand cause
16、s the real wage to fall.slide 17Each of the three models of agg. supply imply the relationship summarized by the SRAS curve & equationY PLRASYSRAS()eYYPP ePPePPePPslide 18Suppose a positive AD shock moves output above its natural rate and P above the level people had expected. Y PLRASSRAS1 equation:
17、 ()eYYPP SRAS11ePPSRAS2AD1AD22eP2P33ePPOver time, P e rises, SRAS shifts up,and output returns to its natural rate.1YY2Y3Yslide 19The Phillips curve states that depends on expected inflation, e cyclical unemployment: the deviation of the actual rate of unemployment from the natural rate supply shock
18、s, ()enuuwhere 0 is an exogenous constant.slide 20(1) ()eYYPP (2) (1)()ePPYY 11(4) ()()(1)()ePPPPYY (5) (1)()eYY (6) (1)()()nYYuu (7) ()enuu(3) (1)()ePPYYslide 21SRAS curve: output is related to unexpected movements in the price levelPhillips curve: unemployment is related to unexpected movements in
19、 the inflation rate SRAS: ()eYYPP Phillips curve: ()enuuslide 22Adaptive expectations: an approach that assumes people form their expectations of future inflation based on recently observed inflation. A simple example: Expected inflation = last years actual inflation1()nuu1eThen, the P.C. becomessli
20、de 23In this form, the Phillips curve implies that inflation has inertia: In the absence of supply shocks or cyclical unemployment, inflation will continue indefinitely at its current rate. Past inflation influences expectations of current inflation, which in turn influences the wages & prices that
21、people set. 1()nuuslide 24cost-push inflation: inflation resulting from supply shocks.Adverse supply shocks typically raise production costs and induce firms to raise prices, “pushing” inflation up.demand-pull inflation: inflation resulting from demand shocks.Positive shocks to aggregate demand caus
22、e unemployment to fall below its natural rate, which “pulls” the inflation rate up. 1()nuuslide 25In the short run, policymakers face a trade-off between and u. u nu1 The short-run Phillips Curvee()enuu slide 26People adjust their expectations over time, so the tradeoff only holds in the short run.
23、u nu1e()enuu2e E.g., an increase in e shifts the short-run P.C. upward.slide 27To reduce inflation, policymakers can contract agg. demand, causing unemployment to rise above the natural rate.The sacrifice ratio measures the percentage of a years real GDP that must be foregone to reduce inflation by
24、1 percentage point. Estimates vary, but a typical one is 5.slide 28Suppose policymakers wish to reduce inflation from 6 to 2 percent. If the sacrifice ratio is 5, then reducing inflation by 4 points requires a loss of 45 = 20 percent of one years GDP.This could be achieved several ways, e.g. reduce
25、GDP by 20% for one year reduce GDP by 10% for each of two years reduce GDP by 5% for each of four yearsThe cost of disinflation is lost GDP. One could use Okuns law to translate this cost into unemployment.slide 29Ways of modeling the formation of expectations: adaptive expectations: People base the
26、ir expectations of future inflation on recently observed inflation. rational expectations:People base their expectations on all available information, including information about current and prospective future policies. slide 30Proponents of rational expectations believe that the sacrifice ratio may
27、 be very small:Suppose u = u n and = e = 6%,and suppose the Fed announces that it will do whatever is necessary to reduce inflation from 6 to 2 percent as soon as possible.If the announcement is credible, then e will fall, perhaps by the full 4 points. Then, can fall without an increase in u. slide
28、311981: = 9.7%1985: = 3.0%yearuu nu u n19829.5%6.0%3.5%19839.56.03.519847.46.01.419857.16.01.1Total 9.5%Total disinflation = 6.7% slide 32Previous slide: inflation fell by 6.7% total of 9.5% of cyclical unemploymentOkuns law: each 1 percentage point of unemployment implies lost output of 2 percentag
29、e points. So, the 9.5% cyclical unemployment translates to 19.0% of a years real GDP.Sacrifice ratio = (lost GDP)/(total disinflation)= 19/6.7 = 2.8 percentage points of GDP were lost for each 1 percentage point reduction in inflation.slide 33Our analysis of the costs of disinflation, and of economi
30、c fluctuations in the preceding chapters, is based on the natural rate hypothesis:slide 34Hysteresis: the long-lasting influence of history on variables such as the natural rate of unemployment.Negative shocks may increase u n , so economy may not fully recover: The skills of cyclically unemployed w
31、orkers deteriorate while unemployed, and they cannot find a job when the recession ends. Cyclically unemployed workers may lose their influence on wage-setting; insiders (employed workers) may then bargain for higher wages for themselves. Then, the cyclically unemployed “outsiders” may become struct
32、urally unemployed when the recession ends.slide 351. Three models of aggregate supply in the short run:sticky-wage model imperfect-information model sticky-price modelAll three models imply that output rises above its natural rate when the price level falls below the expected price level.slide 362.
33、Phillips curvederived from the SRAS curvestates that inflation depends on expected inflationcyclical unemployment supply shockspresents policymakers with a short-run tradeoff between inflation and unemploymentslide 373. How people form expectations of inflationadaptive expectationsbased on recently
34、observed inflationimplies “inertia”rational expectationsbased on all available informationimplies that disinflation may be painlessslide 384. The natural rate hypothesis and hysteresisthe natural rate hypothesesstates that changes in aggregate demand can only affect output and employment in the short runhysteresisstates that agg. demand can have permanent effects on output and employmentslide 39
