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大学宏观经济学第三版英文答案chapter33
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QuickQuizzes
1.Threekeyfactsabouteconomicfluctuationsare:
(1)economicfluctuationsareirregularandunpredictable;
(2)mostmacroeconomicquantitiesfluctuatetogether;and(3)asoutputfalls,unemploymentrises.
Economicfluctuationsareirregularandunpredictable,asyoucanseebylookingatagraphofrealGDPovertime.Somerecessionsareclosetogetherandothersarefarapart.Thereappearstobenorecurringpattern.
Mostmacroeconomicquantitiesfluctuatetogether.Inrecessions,realGDP,consumerspending,investmentspending,corporateprofits,andothermacroeconomicvariablesdeclineorgrowmuchmoreslowlythanduringeconomicexpansions.However,thevariablesfluctuatebydifferentamountsoverthebusinesscycle,withinvestmentvaryingmuchmorethanothervariables.
Asoutputfalls,unemploymentrises,becausewhenfirmswanttoproduceless,theydosobylayingoffworkers,thuscausingariseinunemployment.
2.Theeconomy’sbehaviorintheshortrundiffersfromitsbehaviorinthelongrunbecausetheassumptionofmonetaryneutralityappliestothelongrun,nottheshortrun.Intheshortrun,realandnominalvariablesarehighlyintertwined.
Figure1showsthemodelofaggregatedemandandaggregatesupply.Thehorizontalaxisshowsthequantityofoutputandtheverticalaxisshowsthepricelevel.
Figure1
3.Theaggregate-demandcurveslopesdownwardforthreereasons.First,whenpricesfall,thevalueofdollarsinpeople’swalletsandbankaccountsrises,sotheyarewealthier.Asaresult,theyspendmore,soaggregatedemandincreases.Second,whenpricesfall,peopleneedlessmoneytomaketheirpurchases,sotheylendmoreout,whichreducestheinterestrate.Thelowerinterestrateencouragesbusinessestoinvestmore,raisingaggregatedemand.Third,sincelowerpricesleadtoalowerinterestrate,investorsmovemoneyfromdomesticinvestmenttoforeigninvestment,supplyingdollarstotheforeign-exchangemarket,thuscausingthedollartodepreciate.Thedeclineintherealexchangeratecausesnetexportstoincrease,whichraisesaggregatedemand.
Anyeventthataltersthelevelofconsumption,investment,governmentpurchases,ornetexportsatanypricelevelwillleadtoashiftinaggregatedemand.Anincreaseinexpenditurewillshifttheaggregatedemandcurvetotheright,whileadeclineinexpenditurewillshifttheaggregatedemandcurvetotheleft.
4.Thelong-runaggregate-supplycurveisverticalbecausethepriceleveldoesnotaffectthelong-rundeterminantsofrealGDP,whichincludesuppliesoflabor,capital,naturalresources,andthelevelofavailabletechnology.Thisisjustanapplicationoftheclassicaldichotomyandmonetaryneutrality.
Therearethreereasonswhytheshort-runaggregate-supplycurveslopesupward.First,thesticky-wagetheorysuggeststhatbecausenominalwagesareslowtoadjust,adeclineinthepricelevelmeansrealwagesarehigher,sofirmshirefewerworkersandproduceless,causingaggregatesupplytodecline.Second,thesticky-pricetheorysuggeststhatthepricesofsomegoodsandservicesareslowtochange.Then,ifsomeeconomiceventcausestheoverallpriceleveltodecline,pricesthatarestickywon’tbeabletoadjustimmediately,sorelativepricesofthosegoodswillriseandthedemandforthosegoodswilldecline,leadingfirmstocutbackonproduction.Thus,loweroverallpricesleadtoloweraggregatesupply.Third,themisperceptionstheorysuggeststhatchangesintheoverallpricelevelcantemporarilymisleadsuppliers.Whenthepricelevelfallsbelowthelevelthatwasexpected,suppliersthinkthattherelativepricesoftheirproductshavedeclined,sotheyproduceless.Thus,alowerpricelevelreducesaggregatesupply.
Figure2
5.Whenapopularpresidentialcandidateiselected,causingpeopletobemoreconfidentaboutthefuture,theywillspendmore,causingtheaggregate-demandcurvetoshifttotheright,asshowninFigure2.TheeconomybeginsatpointAwithaggregate-demandcurveAD1andshort-runaggregate-supplycurveAS1.TheequilibriumhaspricelevelP1andoutputlevelY1.Increasedconfidenceaboutthefuturecausestheaggregate-demandcurvetoshifttoAD2.NowtheeconomyisatpointB,withpricelevelP2andoutputlevelY2.Overtime,theshort-runaggregate-supplycurveshiftsuptoAS2andtheeconomygetstoequilibriumatpointC,withpricelevelP3andoutputlevelY1.
QuestionsforReview
1.TwomacroeconomicvariablesthatdeclinewhentheeconomygoesintoarecessionarerealGDPandinvestmentspending(manyotheranswersarepossible).Amacroeconomicvariablethatrisesduringarecessionistheunemploymentrate.
2.Figure3showsaggregatedemand,short-runaggregatesupply,andlong-runaggregatesupply.
Figure3
3.Theaggregate-demandcurveisdownwardslopingbecause:
(1)adecreaseinthepricelevelmakesconsumersfeelwealthier,whichinturnencouragesthemtospendmore,sothereisalargerquantityofgoodsandservicesdemanded;
(2)alowerpricelevelreducestheinterestrate,encouraginggreaterspendingoninvestment,sothereisalargerquantityofgoodsandservicesdemanded;(3)afallintheU.S.pricelevelcausesU.S.interestratestofall,sotherealexchangeratedepreciates,stimulatingU.S.netexports,sothereisalargerquantityofgoodsandservicesdemanded.
4.Thelong-runaggregatesupplycurveisverticalbecauseinthelongrun,aneconomy'ssupplyofgoodsandservicesdependsonitssuppliesofcapital,labor,andnaturalresourcesandontheavailableproductiontechnologyusedtoturntheseresourcesintogoodsandservices.Thepriceleveldoesnotaffecttheselong-rundeterminantsofrealGDP.
5.Threetheoriesexplainwhytheshort-runaggregate-supplycurveisupwardsloping:
(1)thesticky-wagetheory,inwhichalowerpricelevelmakesemploymentandproductionlessprofitablebecausewagesdonotadjustimmediatelytothepricelevel,sofirmsreducethequantityofgoodsandservicessupplied;
(2)thesticky-pricetheory,inwhichanunexpectedfallinthepricelevelleavessomefirmswithhigher-than-desiredpricesbecausenotallpricesadjustinstantlytochangingconditions,whichdepressessalesandinducesfirmstoreducethequantityofgoodsandservicestheyproduce;and(3)themisperceptionstheory,inwhichalowerpricelevelcausesmisperceptionsaboutrelativeprices,andthesemisperceptionsinducesupplierstorespondtothelowerpricelevelbydecreasingthequantityofgoodsandservicessupplied.
6.Theaggregate-demandcurvemightshifttotheleftwhensomething(otherthanariseinthepricelevel)causesareductioninconsumptionspending(suchasadesireforincreasedsaving),areductionininvestmentspending(suchasincreasedtaxesonthereturnstoinvestment),decreasedgovernmentspending(suchasacutbackindefensespending),orreducednetexports(suchaswhenforeigneconomiesgointorecession,soourexportsfall.
Figure4tracesthroughthestepsofsuchashiftinaggregatedemand.Theeconomybeginsinequilibrium,withshort-runaggregatesupply,AS1,intersectingaggregatedemand,AD1,atpointA.Whentheaggregate-demandcurveshiftstothelefttoAD2,theeconomymovesfrompointAtopointB,reducingthepricelevelandthequantityofoutput.Overtime,peopleadjusttheirperceptions,wages,andprices,shiftingtheshort-runaggregate-supplycurvedowntoAS2,andmovingtheeconomyfrompointBtopointC,whichisbackonthelong-runaggregatesupplycurveandhasalowerpricelevel.
Figure4
7
.Theaggregate-supplycurvemightshifttotheleftbecauseofadeclineintheeconomy'scapitalstock,laborsupply,orproductivity,oranincreaseinthenaturalrateofunemployment,allofwhichshiftboththelong-runandshort-runaggregatesupplycurvestotheleft.Anincreaseintheexpectedpricelevelshiftsjusttheshort-runaggregate-supplycurve(notthelong-runaggregate-supplycurve)totheleft.
Figure5tracesthroughtheeffectsofsuchashift.TheeconomystartsinequilibriumatpointA.Theaggregate-supplycurvethenshiftstotheleftfromAS1toAS2.ThenewequilibriumisatpointB,theintersectionoftheaggregate-demandcurveandAS2.Astimegoeson,theeconomyreturnstolong-runequilibriumatpointA,astheshort-runaggregatesupplycurveshiftsbacktoitsoriginalposition.
Figure5
ProblemsandApplications
1.Investmentismorevariablethanconsumerspendingoverthebusinesscyclebecausefirmscancurtailinvestmentspendingmoreeasilythanhouseholdscancurtailconsumptionspending.Inrecessions,firmsknowtheywillnotbeabletosellasmanygoods,sotheywanttoproducelessandthereforetheyputoffbuyingcapital(theydonotexpandfactoriesorbuynewequipment).Muchofconsumerspendingisonnecessities,likefood,whichcannotdeclineasmuchinrecessions.So,investmentspendingismorevariableoverthebusinesscyclethanconsumerspending.Forsimilarreasons,durablegoodsspendingisthemostvolatilesectorofconsumerspending.Durablegoods,suchasfurnitureandcarpurchases,aremorevolatileoverthebusinesscyclethannondurablegoods,suchasfoodandclothing,orservices,suchashaircutsandmedicalcare,forthesamereason.Peopleputoffbuyingdurablegoodsandjustmakedowitholdercarsandfurniturewheneconomictimesarebad.
2.a.ThecurrentstateoftheeconomyisshowninFigure6.Theaggregate-demandcurveandshort-runaggregate-supplycurveintersectatapointtotheleftoflong-runaggregatesupply.
b.Astockmarketcrashleadstoaleftward