The Aggregate Expenditures Model

Transcription

1 and the 9 The Aggregate s Model 9-1 Copyright 08 The McGraw-Hill Companies and the Chapter Objectives Understand How Economists Combine to Depict an Aggregate s Schedule for a Private Closed Economy. Three Characteristics of the Level of Real in a Private Closed Economy. How Changes in Real Occur and Relate to. Integrate and Foreign Sectors into AE. and Expansionary s. 9-2 Copyright 08 The McGraw-Hill Companies and the r and i (percent) Simplifications Private Closed Economy Planned Investment Investment Schedule 8 Investment Demand Curve Investment Demand Curve ID Investment (billions of dollars) Investment (billions of dollars) Investment Schedule Investment Schedule Real (billions of dollars) I g 9-3 Copyright 08 The McGraw-Hill Companies 1

2 and the : C + I g = Real Domestic Output. Aggregate s. Aggregate s Schedule.. Disequilibrium. 9-4 Copyright 08 The McGraw-Hill Companies and the 9-5 (1) Employment (1) 40 (2) 45 (3) 50 (4) 55 (5) 60 (6) 65 (7) 70 (8) 75 (9) 80 () 85 (2) Real Domestic Output (and Income) (=DI) $ (3) Consump- tion (C) $ Copyright 08 The McGraw-Hill Companies (4) Saving (S) (1-2) $ (7) (8) (5) (6) Unplanned Tendency of Investment Aggregate Changes inemployment (I g ) s Inventories Output and (C+I g ) (+ or -) Income in Billions of Dollars $ Graphically $ Decrease Decrease Decrease Decrease and the (billions of dollars) Point Aggregate s (C + Ig = ) Disposable Income (billions of dollars) C + I g C I g = $ Billion C = $ Billion 9-6 Copyright 08 The McGraw-Hill Companies 2

3 and the Other Features Saving Equals Planned Investment. Leakage. Injection. No Unplanned Changes in Inventories. 9-7 Copyright 08 The McGraw-Hill Companies and the Aggregate s (billions of dollars) Changes in and the 5 in Investment 5 Real (billions of dollars) Decrease in Investment (C + I g ) 1 (C + I g ) 0 (C + I g ) Copyright 08 The McGraw-Hill Companies and the Net Exports and Aggregate s. Net Exports Schedule. Net Exports and. Positive Net Exports. Negative Net Exports. Economic Linkages. Prosperity Abroad. Tariffs. Exchange Rates. 9-9 Copyright 08 The McGraw-Hill Companies 3

4 and the 9- Aggregate s (billions of dollars) Net Exports X n (billions of Dollars) Copyright 08 The McGraw-Hill Companies Net Exports and Aggregate s with Positive Net Exports Aggregate s with Negative Net Exports 5 Real (billions of dollars) Positive Net Exports Negative Net Exports C + I g +X n1 C + I g C + I g +X n2 X n1 Real X n2 and the 9-11 Global Perspective Net Exports of Goods - Select Nations, 04 Negative Net Exports Positive Net Exports Canada France Germany Italy Japan United Kingdom -707 United States Source: World Organization Copyright 08 The McGraw-Hill Companies (9) () 550 Adding the Public Sector Purchases and (5) Net Exports (1) Level of and the Output and (2) (4) (X n ) (6) (3) Investment Exports Imports Saving (S) (I g ) (X) (M) Income (=DI) (C) in Billions of Dollars (1) $370 $375 $-5 $ (2) (3) (4) (5) (6) (7) (8) (G) (7) Aggregate s (C+I g +X n +G) (2)+(4)+(5)+(6) $ Copyright 08 The McGraw-Hill Companies 4

5 and the 9-13 Aggregate s (billions of dollars) Adding the Public Sector Spending of $ Billion Copyright 08 The McGraw-Hill Companies 550 Real (billions of dollars) C + I g + X n + G C + I g + X n C $ Billion in Spending Yields an $80 Billion In and the 9-14 Adding the Public Sector Aggregate s (billions of dollars) $15 Billion Decrease In From a $ Billion (MPC=.75) in Taxes Copyright 08 The McGraw-Hill Companies 550 Real (billions of dollars) C + I g + X n + G C d + I g + X n + G $ Billion in Taxes Yields a $60 Billion Decrease In and the Adding the Public Sector C d + I g + X n + G = Leakages Injections No Planned Inventory Changes S d + M + T = I g + X + G 9-15 Copyright 08 The McGraw-Hill Companies 5

6 and the 9-16 Copyright 08 The McGraw-Hill Companies Versus Full-Employment Aggregate s (billions of dollars) $5 Billion Yields $ Billion Change Full Employment 5 Real (billions of dollars) AE 0 AE 1 = $5 Billion and the 9-17 Copyright 08 The McGraw-Hill Companies Versus Full-Employment Aggregate s (billions of dollars) = $5 Billion 5 Real (billions of dollars) AE 2 AE 0 $5 Billion Yields $ Billion Change Full Employment and the Versus Full-Employment Application: U.S. Recession of 01.. U.S. Inflation in the Late 1980s. Full-Employment Output with Large Negative Net Exports. Negative Net Exports Copyright 08 The McGraw-Hill Companies 6

7 and the Versus Full-Employment Limitations of the Model Does Not Show Price Level Changes. Ignores Premature Demand-Pull Inflation. Limits Real to the Full- Employment Level of Output. Does Not Deal with Cost-Push Inflation. Does Not Allow for Self-Correction Copyright 08 The McGraw-Hill Companies and the Say s Law - The Great Depression and Keynes Last Word Classical School Automatic Self-Adjustment to Full Employment Mill, Ricardo. Views Based Upon Say s Law - J.B. Say ( ) Supply Creates its Own Demand. Great Depression Caused Questions. Keynes Answered in his General Theory of Employment, Interest, and Money. Income and Saving Discrepancies. Volatility in Investment Spending. Cyclical Unemployment Can Occur. Should Be Active in the Recovery Process. 9- Copyright 08 The McGraw-Hill Companies and the Key Terms Planned investment Investment schedule Aggregate expenditures schedule Leakage Injection Unplanned changes in inventories Net exports Lump-sum tax -expenditure gap -expenditure gap 9-21 Copyright 08 The McGraw-Hill Companies 7

8 and the Next Chapter Preview Aggregate Demand and Aggregate Supply Chapter 9-22 Copyright 08 The McGraw-Hill Companies 8