Thuyết trình môn đầu tư tài chính the IS curve hc

Increases in autonomous consumption, investment, government purchases, or net exports, or a decrease in taxes or financial frictions  an increase in output at any given real interest

Chapter 21

Instructor:

Prof & Dr TRAN NGOC THO

Members of Group :

Tran Thi Hang

Duong Duy Hung

To Anh Vu

OUTLINE

1 THE IS CURVE

2 EXTEND: MỘT VÀI QUAN ĐIỂM KHÁC KEYNES VỀ

CHI TIÊU VÀ TỔNG CẦU BÀI HỌC CHO VIỆT NAM

 Aggregate output fell by 30%,

 Unemployment rising to 25% Unemployment rising to over 10%

 were determined by changes in aggregate demand

PLANNED EXPENDITURE AND AGGREGATE DEMAND

THE COMPONENTS OF AGGREGATE DEMAND

GOODS MARKET EQUILIBRIUM

UNDERSTANDING THE IS CURVE

FACTORS THAT SHIFT THE IS CURVE

OUTLINE

Planned expenditure The total amount of spending on domestically produced goods and services that households,

businesses, the government, and foreigners want to make

Actual expenditure is the amount that they actually do spend, which equals the total amount of output produced in the

economy

Keynes viewed aggregate demand , the total amount of output

demanded in the economy, as being the same as planned

expenditure

Consumption expenditure (C)

• the total demand for consumer goods and services (e.g., hamburgers, iPods, rock concerts, visits to the doctor, etc.)

Planned investment spending (I)

• the total planned spending by businesses on new physical capital (e.g., machines, computers, factories) plus planned spending on new homes

1 Consumption expenditure

What determines how much you spend on

consumer goods and services?

Disposable income (denoted by YD), the total income

available for spending, equal to

aggregate output (Y ) minus taxes T (Y - T)

Consumption Function

The relationship between disposable income YD and

consumption expenditure C

𝐶 : autonomous consumption expenditure, the amount

of consumption expenditure that is exogenous

mpc : the marginal propensity to consume, reflects the

change in consumption expenditure that results from an

additional dollar of disposable income

Keynes assumed that mpc was a constant between the values

of 0 and 1

2 Planned Investment Spending

They are normally referring to the purchase of common stocks or bonds, purchases that do not necessarily

involve newly produced goods and services

Meaning of the Word Investment

Noneconomists

Economists

They are referring to the purchase of new physical

assets, such as new machines or new houses purchases that add to aggregate demand

Planned Investment Spending

Planned spending by firms on:

• Equipment (machines, computers,

as the change in holdings of these items in a given time period—say, a year

Inventory investment in 2014 is $1 billion

($3 billion minus $2 billion)

Inventory investment in 2014 is –$1 billion

($1 billion minus $2 billion)

December 31, 2013

December 31, 2014

Ford may also have additional inventory investment

if the level of raw materials and parts that it is holding to produce these cars increases over the course of the year.

• December 31, 2013, it holds $50 million of steel

used to produce its cars

• December 31, 2014, it holds $100 million

It has an additional $50 million of inventory

investment in 2014

Inventory Investment

Some inventory investment can be unplanned (in contrast, fixed investment is always planned)

Adjusting production to eliminate unplanned inventory investment plays a key role in the determination of aggregate output.

Planned Investment Spending and Real Interest

Rates

Planned investment spending is equal to planned fixed investment plus the amount of inventory investment

planned by firms

Keynes considered the level of the real cost of

borrowing to be a key determinant of planned

investment spending.

The real interest rate are low, business firms are more likely

to undertake an investment in physical capital, and planned investment spending will increase

Planned Investment Spending and Real Interest

Rates

10%, fewer investments in physical capital will earn more than the 10% cost of borrowed funds

The real interest rate is high

The real interest rate is low 1%, many investments in physical capital will earn more than the 1% interest cost of borrowed funds

Planned Investment Spending and Real Interest

Rates

 If a company has surplus funds and does not need to borrow

to undertake an investment in physical capital

 Instead of investing in physical capital, it could purchase a security, such as a bond

 If the real interest rate on this security is high, 10%, the opportunity cost (forgone interest earnings) of an investment

is high  Planned investment spending will then be low Because the firm would probably prefer to purchase the security and earn the high 10% return than to invest in physical capital

 The real interest rate and the opportunity cost of investing fall to 1%  planned investment spending will increase Because investments in physical capital are likely to earn greater income for the firm than the measly 1% the security earns

Planned Investment and Business Expectations

Keynes also believed that planned investment spending is heavily influenced by business expectations about the future

Businesses that are optimistic about future profit opportunities are willing to spend more, whereas

pessimistic businesses cut back their spending

Thus Keynes posited a component of planned

investment spending he called autonomous investment,

I, that is completely exogenous and so is unexplained by

variables in his model, such as output or interest rates

Investment Function

Describes how planned investment spending is related to autonomous investment and the real interest cost of borrowing

where d is a parameter reflecting how responsive investment

is to the real cost of borrowing, which is denoted by rc

3 Net exports

Real Interest Rates and Net Exports

Real interest rates influence the amount of net exports through

the exchange rate

U.S real interest rates rise  U.S dollar assets earn higher returns relative to foreign assets  People then want to hold mo

re dollars  they bid up the value of dollars and thereby increase its value relative to other currencies

A rise in the value of the dollar  U.S exports more expensive

in foreign currencies  foreigners will buy less of them

It also makes foreign goods less expensive in terms of dollars,

so U.S imports will rise

Autonomous Net Exports

The amount of exports is also affected by the demand by foreigners for domestic goods

The amount of imports is affected by the demand by domestic residents for foreign goods

For example

The Chinese have a poor harvest

and want to buy more U.S wheat

 U.S exports will rise

U.S consumers discover how good Chilean wine is and want to buy more

 U.S imports will rise

Net Export Function

(7)

NX

x :is a parameter that indicates how net exports

respond to the real interest rate

: Autonomous Net Exports

Net exports are positively related to autonomous net exports and are negatively related to the level of real interest rates

4 Government Purchases and Taxes

The government affects spending through taxes because disposable

income is equal to income minus taxes, Y - T, and disposable

income affects consumption expenditure

Taxes

The tax laws in a country like the United States are very complicated

 keep the model simple, we assume that government taxes are exo

genous and are a fixed amount T

(9)

Keynes recognized that equilibrium would occur in the economy when the total quantity of output equals the total amount of aggregate demand

When this equilibrium condition is satisfied, planned spending for

goods and services is equal to the amount that is produced

Solving for Goods Market Equilibrium

Y = C + I + G + NX (11)

Deriving the IS Curve

We refer to Equation 12 as the IS curve, and it shows the relation

-ship between aggregate output and the real interest rate when the goods market is in equilibrium

Increases in autonomous consumption, investment, government

purchases, or net exports, or a decrease in taxes or financial

frictions  an increase in output at any given real interest rate

 shifts in the IS curve

An increase in real interest rates results in a decline in output,

which is a movement along the IS curve

What the IS Curve Tells Us: Intuition

 The IS curve traces out the points at which the goods market

is in equilibrium

 For each given level of the real interest rate, the IS curve tells

us what the aggregate output must be for the goods market to

be in equilibrium

 As the real interest rate rises, planned investment spending add net exports fall, which in turn lowers aggregate demand; aggregate output must be lower for it to equal aggregate

demand and satisfy goods market equilibrium

 Hence the IS curve is downward-sloping

What the IS Curve Tells Us: Numerical Example

Figure 1: The IS Curve

 The IS curve describes equilibrium points in the goods market—the

combinations of the real interest rate and equilibrium output

 The IS curve shifts whenever change occurs in autonomous factors

(factors independent of aggregate output and the real interest rate)

 A shift in the IS curve, by contrast, occurs when equilibrium output changes at each given real interest rate

 In Equation 12, we identified six candidates as autonomous factors that can shift aggregate demand and hence affect the level of equilibrium output

1 Changes in Government Purchases

If government purchases rise from $3 trillion to $4 trillion

At a real interest rate of r = 3%, equilibrium output Y =

14.5 − 3 = $11.5 trillion

At a real interest rate r = 1%, equilibrium output has increased

to Y = 14.5 − 1 = $13.5 trillion

Figure 2 Shift in the IS Curve from an Increase

in Government Purchases

Since aggregate output equals aggregate demand

when the goods market is in equilibrium, an increase in

government purchases that causes aggregate demand to rise also causes equilibrium output to rise, thereby

shifting the IS curve to the right

Conversely, a decline in government purchases causes aggregate demand to fall at any given real interest rate and leads to a leftward shift of the IS curve

Changes in Government Purchases

The Vietnam War Buildup, 1964–1969

Beginning in 1965, the resulting increases in military expenditure raised government purchases

The Federal Reserve decided to keep real interest rates constant at 2%

Equilibrium output rose from $3.0 trillion (in 2000 dollars) in

1964 to $3.8 trillion by 1969

The unemployment rate falling steadily from 5% in 1964 to

3.4% in 1969

Figure 3: Vietnam War Build Up

2 Changes in Taxes

If the government raises taxes from $3 trillion to $4 trillion

At a real interest rate of r = 3%, equilibrium output

Y = 10.5 - 2 3 = $7.5 trillion

At a real interest rate r = 1%, equilibrium output has decreased to

Y = 10.5 2 1 = $9.5 trillion

Figure 4: Shift in the IS Curve from an

Increase in Taxes

At any given real interest rate, a rise in taxes causes aggregate demand and hence equilibrium output to fall, thereby shifting the IS curve to the left

Conversely, a cut in taxes at any given real interest rate increases disposable income and causes aggregate demand and equilibrium output to rise, shifting the IS curve to the right

Changes in Taxes

The Fiscal Stimulus Package of 2009

In the fall of 2008, the U.S economy was

in crisis

The unemployment rate had risen from 4.7% just

before the recession began in December 2007 to 7.6%

As the analysis in Figure 2 and Figure 4 indicate,

Tax spending  aggregate demand  the equilibrium of aggregate output at any given real interest rate

 shifting the IS curve to the right

Unfortunately, most of the government purchases did not kick in until after 2010

Autonomous consumption and investment

 The aggregate demand ended up contracting rather than rising

The IS curve did not shift to the right

The unemployment rate ended up rising to over 10% in 2009

The Fiscal Stimulus Package of 2009

Changes in Autonomous Spending

3 Autonomous Consumption

Autonomous consumption  Aggregate demand and equilibrium output at any given interest rate

 shifting the IS curve to the right

Autonomous consumption  Aggregate demand and equilibrium output

 shifting the IS curve to the left

4 Autonomous Investment Spending

Autonomous investment spending  Equilibrium output at any given interest rate

 shifting the IS curve to the right

Autonomous investment spending  Equilibrium output at any given interest rate

 shifting the IS curve to the left

Autonomous net exports  equilibrium output at any given interest rate  shifts the IS curve to the right

Autonomous net exports  aggregate demand and equilibrium output  shifts the IS curve to the left

Financial frictions  equilibrium output at any given real interest rate  shifts the IS curve to the left

Financial frictions  aggregate demand and equilibrium

output  shifts the IS curve to the right

Milton Friedman và trường phái trọng tiền

 Khi có khoản thu nhập chắc chắn và ổn định thì mức tăng chi tiêu cao hơn mức tăng thu nhập

 Ông phê phán quan điểm của Keynes về chi tiêu tiêu dùng phụ thuộc vào thu nhập và tăng chậm hơn thu nhập và cho rằng điều này thực dụng khi có khoản thu nhập không chắc chắn, vì khi đó xuất hiện tâm lý dự trữ

đề phòng làm cho tiết kiệm tăng lên

 Sự thay đổi chi tiêu tiêu dùng phụ thuộc vào thu nhập trước đó, tỷ suất lợi tức (do nhà nước quy định) và phần thu nhập có được từ tài nguyên vật chất, cũng như thu nhập hiện tại

 Theo Friedman thì năng lực nhà nước trong quản lý nền kinh tế thường thì không chắn chắn, chậm trể, và những chính sách thường có tác dụng rất ít nhất là trong việc kéo nền kinh tế ra khỏi suy thoái và thất nghiệp cao

 Ngược với Keynes, ông chỉ trích việc Keynes đánh giá quá cao vai trò của chính sách tài khoá và theo ông, các chính sách về tài khoá hầu như không làm thay đổi tổng cầu;

Milton Friedman và trường phái trọng tiền

- Keynes cho rằng, nhà nước phải can thiệp trực tiếp vào nền kinh tế thông qua đầu tư công, giảm lãi suất, tăng tiêu dùng của mọi tầng lớp dân cư trong đó có bộ máy công quyền để tăng tổng cầu

- Milton Friedman lại cho rằng, nhà nước chỉ cần tác động vào lãi suất sẽ tác động đến cầu tiêu dùng trong tương lai Lãi suất tiền gửi tăng làm cho thu nhập của người gửi tiền tăng, thu hoạch tương lai tăng đồng nghĩa với việc tiêu dùng tăng trong tương lai

Milton Friedman và trường phái trọng tiền