Thuyết trình môn đầu tư tài chính aggregate demand and supply analysis

Chapter 23: Aggregate Demand and Supply Analysis Tp Hồ Chí Minh - 2017 Trần Thị Ngọc Hạnh Phạm Quang Thái Nguyễn Phi Điệp OUTLINE Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Supply and Shifts in Aggregate Supply Curves Equilibrium in Aggregate Demand and Supply Analysis Changes in Equilibrium: Aggregate Demand Shocks Changes in Equilibrium: Aggregate Supply Shocks AD/AS Analysis of Foreign Business Cycle Episodes The Phillips Curve and the Short-Run Aggregate Supply Curve PREVIEW ● ● Aggregate demand: total amount of output demanded at different inflation rates ● ● Equilibrium occurs at the intersection of the aggregate demand and aggregate supply curves Aggregate supply: total amount of output that firms in the economy want to sell at different inflation rates Aggregate demand and supply analysis will enable us to explore how aggregate output and inflation are determined Aggregate Demand and Shifts in Aggregate Supply Curves ● The first building block of aggregate supply and demand analysis is the aggregate demand curve: describes the relationship between the quantity of aggregate output demanded and the inflation rate when all other variables are held constant Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Demand 2.Planned investment 1.Consumption spending expenditure Aggregate Demand Net exports 3.Government purchases Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Demand Aggregate demand is made up of four component parts: Consumption expenditure (C): the total demand for consumer goods and services; Planned investment spending (I): the total planned spending by business firms on new machines, factories, and other capital goods, plus planned spending on new homes; Government purchases (G): spending by all levels of government (federal, state, and local) on goods and services (paper clips, computers, computer programming, missiles, government workers, and so on); Net exports (NX): the net foreign spending on domestic goods and services, equal to exports minus imports Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Demand Y ad = C + I + G +NX (1) Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Demand and Shifts in Aggregate Supply Curves Deriving the Aggregate Demand Curve • When the inflation rate rises (π ↑), the monetary authorities will raise the real interest rate (r↑) => keep inflation from spiraling out of control • Next, the resulting higher cost of financing purchases of new physical capital makes investment less profitable and causes planned investment spending to decline (I↓) • Because, Equation 1, planned investment spending is included in aggregate demand: the decline in planned ad investment spending => Y ↓ A higher inflation rate therefore leads to a lower level of the quantity of aggregate output demanded (π↑) => (Yad↓), and so the aggregate demand curve slopes down as in Figure π ↑ => r↑ => (I↓) => (Y ad ↓) Aggregate Demand and Shifts in Aggregate Supply Curves Inflation Rate, π  ↑ , , ↑, ,,,↑ decreases aggregate demand and shifts the AD curve to the left AD AD2 Aggregate Output, Y Figure 1: Leftward Shift in the Aggregate Demand Curve 8/1/17 10 The Friedman-Phelps Phillips Curve Analysis This prediction of the Friedman and Phelps analysis turned out to be exactly right Starting in the 1970s, after a period of very low unemployment rates, the negative relationship between unemployment and inflation, which was so visible in the 1950s and 1960s, disappeared The Friedman-Phelps Phillips Curve Analysis Given the brilliance of Friedman's and Phelps’s work, they were both awarded Nobel Prizes CONTENT THE PHILLIPS CURVE • • THE SORT-RUN AGGREGATE SUPPLY CURVE Phillips Curve Analysis in the 1960s The Friedman-Phelps Phillips Curve Analysis • The Phillips Curve after the 1960s • Okun’s Law • Deriving the Short-Run Aggregate Supply Curve The Phillips Curve after the 1960s -The modern Phillips Curve • With the sharp rise in oil prices in 1973 and 1979, inflation jumped up sharply and Phillipscurve theorists realized that they had to add one more feature to the expectationsaugmented Phillips curve   The Phillips Curve after the 1960s -The modern Phillips Curve • • Shifts in inflation that are independent of the tightness in the labor markets or of expected inflation For example, when the supply of oil is restricted, as it was following the war between the Arab states and Israel in 1973, the price of oil more than quadrupled, and firms had to raise prices to reflect their increased costs of production, thus driving up inflation The Phillips Curve after the 1960s -The modern Phillips Curve   •• More flexible wages and prices imply that the absolute value of is higher, which implies  that the short-run Phillips curve is steeper • If wages and prices are completely flexible, then becomes so large that the short-run Phillips curve is vertical, and it would be identical to the long-run Phillips curve In this case, there is no long-run or short-run trade-off between unemployment and inflation   The Phillips Curve after the 1960s -The modern Phillips Curve To complete our analysis of the Phillips curve, we need to understand how firms and households form expectations about inflation One simple way of thinking about how firms and households form their expectations about inflation is that they so by looking at past inflation: •     where is the inflation rate in the previous period   Substituting in for in Equation yields the following short-run Phillips curve:   CONTENT THE PHILLIPS CURVE THE SORT-RUN AGGREGATE SUPPLY CURVE • Phillips Curve Analysis in the 1960s • The Friedman-Phelps Phillips Curve Analysis • The Phillips Curve after the 1960s • Okun’s Law • Deriving the Short-Run Aggregate Supply Curve The Short-Run Aggregate Supply Curve • To complete our aggregate demand and supply model, we need to use our analysis of the Phillips curve to derive a short-run aggregate supply curve,which represents the relationship between the total quantity of output that firms are willing to produce and the inflation rate The Short-Run Aggregate Supply Curve • We can translate the modern Phillips curve into a short-run aggregate supply curve by replacing the unemployment gap (U– Un) with the output gap, the difference between output and potential output (Y– YP) To this, we need to make use of a relationship between unemployment and aggregate output that was discovered by the economist Arthur Okun Okun’s law describes the negative relationship between the unemployment gap and the output gap The Short-Run Aggregate Supply Curve • We show Okun’s law in Figure 3, which plots the unemployment gap against the output gap A tight negative relationship exists between the two variables The Short-Run Aggregate Supply Curve •   When output is above potential, so that the output gap is positive, the unemployment rate is below the natural rate of unemployment; that is, the unemployment gap is negative The line through the data points in Figure describes this negative relationship, which algebraically is as follows The Short-Run Aggregate Supply Curve • Okun’s law thus states that for each percentage point that output is above potential, the unemployment rate is one-half of a percentage point below the natural rate of unemployment Alternatively, for every percentage point that unemployment is above its natural rate, output is two percentage points below potential output The Short-Run Aggregate Supply Curve • When output rises, firms not increase employment commensurately with the increase, a phenomenon that is known as labor hoarding Rather, they work employees harder, increasing their hours Furthermore, when the economy is expanding, more people enter the labor force because job prospects are better and so the unemployment rate does not fall by as much as employment increases The Short-Run Aggregate Supply Curve • Using the Okun’s law Equation to substitute for U– Un in the short-run Phillips curve Equation yields the following:   • Replacing 0.5 vby g, which describes the sensitivity of inflation to the output gap, produces the short-run aggregate supply curve that we already saw as Equation in this chapter:   ...OUTLINE Aggregate Demand and Shifts in Aggregate Supply Curves Aggregate Supply and Shifts in Aggregate Supply Curves Equilibrium in Aggregate Demand and Supply Analysis Changes in Equilibrium: Aggregate. .. to aggregate demand and so raises aggregate demand:   => Y ad ↑ Aggregate demand rises at any given inflation rate and the aggregate demand curve shifts to the right as in Figure 1 Aggregate Demand. .. expenditure and aggregate demand, so that aggregate demand falls:   ad the aggregate demand curve shifts to the left as in Figure Aggregate demand falls at any given ↑ inflation rate => ↓ => Y and ↓ Aggregate