Bài giảng MicroEconomics - Chapter 028 The Aggregate Expenditures Model

The Aggregate ExpendituresModelChapter 28McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesAggregate expenditures for a private closed economyCharacteristics of equilibrium real GDP in a private closed economyChanges in equilibrium real GDP and the multiplierAdding the government and international sectors Recessionary and inflationary expenditure gapsModel SimplificationsPrivate closed economyConsumption and investment onlyPrices are fixedExcess capacity existsUnemployed labor existsDisposable income = real GDPNo taxesModel SimplificationsInvestment demand vs. schedule r and i (percent)Investment (billions of dollars)ID208Real GDP (billions of dollars)20Investment (billions of dollars)IgInvestment Demand CurveInvestment Schedule2020Investment Demand CurveInvestment ScheduleEquilibrium GDPReal GDP = C + Ig Aggregate expendituresEqual to C + Ig Aggregate expenditures scheduleQuantity goods produced = quantity goods purchasedDisequilibriumOnly 1 equilibrium level of GDP40455055606570758085$375390405420435450465480495510$-5051015202530354020202020202020202020$395410425440455470485500515530$-25-20-15-10-50+5+10+15+20IncreaseIncrease IncreaseIncreaseIncreaseEquilibriumDecreaseDecreaseDecreaseDecrease$370 390 410 430 450 470 490 510 530 550(2)RealDomesticOutput(andIncome)(GDP=DI)(3)Con-sump-tion(C)(4)Saving (S)(1) – (2)(5)Investment(Ig)(6)AggregateExpenditures(C+Ig)(7)UnplannedChanges inInventories(+ or -)(8)Tendency ofEmployment,Output, andIncome(1)Employ-mentin Billions of DollarsEquilibrium GDPIn millions53051049047045043041039037045° 390 410 430 450 470 490 510 530 550Disposable Income (billions of dollars)Consumption (billions of dollars)CIg = $20 BillionAggregateExpendituresC = $450 BillionC + Ig(C + Ig = GDP)EquilibriumPointEquilibrium GDPEquilibrium GDPSaving equals planned investmentLeakageInjection No unplanned inventory changes51049047045043045°430 450 470 490 510 Real GDP (billions of dollars)Aggregate Expenditures (billions of dollars)Changes in Equilibrium GDPIncrease inInvestment by 5(C + Ig)0Decrease inInvestment by 5(C + Ig)2(C + Ig)1The Multiplier EffectInternational TradeNet exports and aggregate expendituresNet exports scheduleNet exports and equilibrium GDPPositive net exportsNegative net exportsInternational economic linkagesProsperity abroadTariffsExchange ratesRealGDP+50-5Net Exports Xn(billions ofDollars)Real GDP (billions of dollars)Aggregate Expenditures(billions of dollars)51049047045043045°430 450 470 490 510 Net Exports and Equilibrium GDPAggregateExpenditureswith PositiveNet ExportsC + IgAggregateExpenditureswith NegativeNet ExportsC + Ig+Xn2C + Ig+Xn1Xn1Xn2Positive Net ExportsNegative Net Exports450470490-700 200 150 100 50 0 50 100 150 200 250Net Exports of GoodsSelect Nations, 2006Positive Net ExportsNegative Net ExportsCanadaFranceJapanItalyGermanyUnited KingdomUnited States+31+70+203-45-27-171-881Source: World Trade OrganizationAdding the Public SectorGDP = Cd + Ig + Xn + GLump sum taxesTaxes affect disposable incomeConsumption and the MPC Leakages = Sd + M + T Injections = Ig + X + GSd + M + T = Ig + X + GAdding the Public Sector$370 390 410 430 450 470 490 510 530 550$375390405420435450465480495510$-50510152025303540$202020202020202020201010101010101010101020202020202020202020$41543044546047549050552053555010101010101010101010(1)Level ofOutputandIncome(GDP=DI)(2)Consump-tion(C)(3)Saving (S)(4)Investment(Ig)(5)Net Exports(Xn)(6)Government(G)(7)AggregateExpenditures(C+Ig+Xn+G)(2)+(4)+(5)+(6)Exports(X)Imports(M)in Billions of Dollars45° 470 550 Real GDP (billions of dollars)Aggregate Expenditures (billions of dollars)Government Spending EffectCGovernmentSpending of$20 BillionC + Ig + XnC + Ig + Xn + G$20 Billion Increasein GovernmentSpending Yields an$80 Billion IncreaseIn GDP45° 490 550 Real GDP (billions of dollars)Aggregate Expenditures (billions of dollars)Lump Sum Tax Effect$15 Billion DecreaseIn Consumption Froma $20 Billion (MPC=.75)Increase inTaxesCd + Ig + Xn + GC + Ig + Xn + G$20 Billion Increasein Taxes Yields a$60 Billion DecreaseIn GDPRecessionary Expenditure GapGDP is below full employmentReal GDP (billions of dollars)Aggregate Expenditures(billions of dollars)55053051049047045° 490 510 530 AE0AE1FullEmploymentRecessionaryExpenditureGap = $5 Billion$5 BillionGap Yields$20 BillionGDPChangeInflationary Expenditure GapGDP is above full employmentReal GDP (billions of dollars)Aggregate Expenditures(billions of dollars)55053051049047045° 490 510 530 AE0AE2FullEmploymentInflationaryExpenditureGap = $5 Billion$5 BillionGap Yields$20 BillionGDPChangeThe Complete ModelGDP and full employmentMultiplier effectsGovernment spendingLump sum taxesRecessionary gapPolicy optionsInflationary gapDemand pull inflationApplicationU.S. economy late 1990’sToo much investmentStock market bubbleConsumer debtFraudulent business practiceAggregate expenditure fallsU.S. recession of 2001Terror attacks prolonged recessionThe Great Depression Classical economicsMills and RicardoPrices adjust to maintain full employmentSay’s LawSupply creates its own demandDepression challenged the theoryNew theory developedKeynesAggregate expenditure modelKey Termsplanned investmentinvestment scheduleaggregate expenditures scheduleequilibrium GDPleakageinjectionunplanned changes in inventoriesnet exportslump-sum taxrecessionary expenditure gapinflationary expenditure gapNext Chapter PreviewAggregate Demand and Aggregate Supply