Bài giảng MicroEconomics - Chapter 035 Extending the Analysis of Aggregate Supply

Extending the Analysis of Aggregate SupplyChapter 35McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesRelationship between short-run and long-run aggregate supplyApplying the “extended” AD-AS model The Phillips curveNo long-run tradeoff between inflation and unemploymentTaxes and aggregate supply35-2From Short Run to Long RunShort runInput prices inflexibleUpward sloping aggregate supplyLong runInput prices fully flexibleVertical aggregate supplyThe transition?35-3From Short Run to Long RunProduction above potential output:High demand for inputsInput prices riseShort run aggregate supply shifts leftReturn to potential outputProduction below potential outputGraphical examples35-4From Short Run to Long RunQfQ2Q3P3P1P2P3P1P2AS1Real Domestic OutputReal Domestic OutputQfShort-RunAggregate SupplyLong-RunAggregate Supplya1a2a3a1a2a3b1c1Price LevelPrice LevelAS3AS2AS1ASLR35-5Extended AD-AS ModelReal Domestic OutputLong Run EquilibriumPrice LevelP1QfaAS1ASLRAD135-6Extended AD-AS ModelReal Domestic OutputDemand-Pull Inflation Price LevelP1QfaAS1ASLRAD1AD2AS2bcP2P3Q235-7Extended AD-AS ModelReal Domestic OutputCost-push inflation Price LevelP1QfaAS1ASLRAD1AD2AS2bcP2P3If government counters recession with spendingIf government ignores recessionQ235-8Extended AD-AS ModelReal Domestic OutputRecessionPrice LevelP1QfaAS1ASLRAD1AD2AS2bcP2P3Q135-9Extended AD-AS ModelExplaining ongoing inflationOngoing economic growth shifts aggregate supply Ongoing increases in money supply shift aggregate demand Small positive rate of inflation35-10Inflation and UnemploymentLow inflation and unemploymentFed’s major goalsCompatible or conflicting?Short-run tradeoffSupply shocks cause both rates to riseNo long-run tradeoff35-11Unemployment Rate (Percent)Annual Rate of Inflation (Percent)Annual Rate of Inflation (Percent)Unemployment Rate (Percent)The Phillips CurveDemonstrates short-run tradeoff between inflation and unemployment696867666564636261ConceptEmpirical DataData for the 1960s35-12Underlying rationale of the Phillips CurveReal Domestic OutputPrice Level0P0P1P2P3Q0Q1Q2Q3AD0AD1AD2AD3ASThe Phillips Curve35-131960s economists believed in stable, predictable tradeoffPhillips curve shifts over timeAdverse supply shocks 1970sOPEC oil price shockStagflationStagflation’s demise 1980sThe Phillips Curve35-14No long-run tradeoff between inflation and unemploymentShort-run Phillips curveRole of expected inflationLong-run vertical Phillips curveDisinflationThe Phillips Curve35-15The Long-Run Phillips Curve345603691215Annual Rate of Inflation (Percent)Unemployment Rate (Percent)PCLRPC3PC2PC1a1b1a2a3b2b3c3c235-16Taxes and Aggregate SupplySupply-side economicsTax incentives to workTax incentives to save and investThe Laffer curveTax Rate (Percent)Tax Revenue (Dollars)100m0nlmLaffer CurveMaximumTax Revenue35-17Taxes and Aggregate SupplyCriticisms of the Laffer curveTaxes, incentives, and timeInflation and higher real interest ratesPosition on the curveRebuttal and evaluation35-18Taxes and Real GDPNew findings suggest tax increases reduce real GDP (Romer and Romer 2008)Positive output shocks raise tax revenuesDifficult to separate effects of tax changes from other effectsInvestment falls sharply in response to tax changes35-19Key Termsshort runlong runPhillips Curvestagflationaggregate supply shockslong-run vertical Phillips Curvedisinflationsupply-side economicsLaffer Curve35-20Next Chapter PreviewCurrent Issues in Macro Theoryand Policy 35-21