Download Document

ECONOMICS
SECOND EDITION
ROBERT E. HALL
STANFORD UNIVERSITY
MARC LIEBERMAN
NEW YORK UNIVERSITY
CHAPTER 23
THE SHORT-RUN MACRO MODEL
1
Figure 1 Determinants of Consumption Spending
Real
Disposable
Income
+
Interest
Rate
–
+
Real
Wealth
Real
Consumption
Spending
+
Expectations
of Future Income
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
2
Figure 2 U.S. Consumption and Disposable Income,
1960–1999
Real
Consumption 6,000
Spending
($ Billions)
5,000
4,000
1982
3,000
2,000
1,000
1,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
2,000
3,000
4,000
5,000 6,000
Real Disposable
Income ($ Billions)
3
Table 1
Hypothetical
Data on
Disposable Income
and Consumption
Figure 3
The Consumption
Function
Real Disposable Income
(Billions of Dollars
per Year)
Real Consumption Spending
(Billions of Dollars
per Year)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2,000
2,600
3,200
3,800
4,400
5,000
5,600
6,200
6,800
Real
8,000
Consumption
Spending
($ Billions)
7,000
Consumption
Function
6,000
Slope = 0.6
5,000
4,000
3,000
2,000
1,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
Real Disposable
Income ($ Billions)
4
Table 2
The Relationship
Between
Consumption and
Income
Figure 4
The ConsumptionIncome Line
Income or GDP
(Billions
of dollars
per Year)
Tax Collections
(Billions
of dollars
per Year)
Disposable
Income
(Billions
of dollars
per Year)
Consumption
Spending
(Billions
of dollars
per Year)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2,0000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
2,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2,000
2,600
3,200
3,800
4,400
5,000
5,600
6.200
6,800
Real
Consumption
Spending
($ Billions)
ConsumptionIncome
Line
5,600
B
5,000
A
4,000
3,000
Slope = 0.6
2,000
1,000
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
Real Income
($ Billions)
5
Figure 5 A Shift in the Consumption-Income Line
Real
8,000
Consumption
Spending
($ Billions)
7,000
Consumption–Income
Line When T = 500
6,000
5,000
4,000
Consumption–Income
Line When T = 2,000
3,000
2,000
1,000
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
Real Income
($ Billions)
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
6
Table 4
The Relationship Between Income and
Aggregate Expenditure
(1)
Income
or GDP
(Billions
of Dollars
per Year)
(2)
Consumption
Spending
(Billions
of Dollars
per Year)
(3)
Investment
Spending
(Billions
of Dollars
per Year)
(4)
Government
Purchases
(Billions
of Dollars
per Year)
(5)
Net
Exports
(Billions
of Dollars
per Year)
(6)
Aggregate
Expenditure (AE)
(Billions
of Dollars
per Year)
(7)
Change in
Inventories
(Billions of
Dollars
per Year)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2,000
2,600
3,200
3,800
4,400
5,000
5,600
6,200
6,800
700
700
700
700
700
700
700
700
700
500
500
500
500
500
500
500
500
500
400
400
400
400
400
400
400
400
400
3,600
4,200
4,800
5,400
6,000
6,600
7,200
7,800
8,400
–1,600
–1,200
–800
–400
0
400
800
1,200
1,600
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
7
Figure 6 Deriving the Aggregate Expenditure Line
Real
Aggregate
Expenditure
($ Billions)
8,000
C + IP + G + NX
C + IP + G
C + IP
7,000
6,000
C
5,000
4,000
3,000
2,000
1,000
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
Real GDP
($ Billions)
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
8
Figure 7 The 45° Line
C
A
45°
0
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
B
9
Figure 8 Determining Equilibrium Real GDP
Real
Aggregate
Expenditure
($ Billions)
A
9,000
Increase in
Inventories
C + IP + G + NX
8,000
H
7,000
E
6,000
5,000
Total
Output
K
4,000
Decrease
in Inventories
3,000
J
Aggregate
Expenditure
2,000
1,000
Aggregate
Expenditure
Total
Output
45°
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
Real GDP
($ Billions)
10
(a)
Aggregate
Expenditure
Figure 9
Equilibrium
GDP Does Not
Necessarily
Equal
Full-Employment
GDP
Employment
AE low
E
45°
Ye
YFE
Production
Function
Le

E
LFE
Le
Ye
YFE
Ye

Real GDP
(c)
Aggregate
Expenditure
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
E

AE high
45°
YFE
Ye

11
Real GDP
Figure 10
The Effect of
a Change in
Investment
Spending
Total
Spending
Each
Period
($ Billions)
2,500
2,306
2,176
1,960
1,600
1,000
1
Table 5
Cumulative
Increases in
Spending when
Investment
Increases by
$1,000 Billion
2
4
Round
Initial Increase in Investment
Round 2
Round 3
Round 4
Round 5
Round 6
Round 7
Round 8
Round 9
Round 10
.
.
All other rounds
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
3
5
...
Time
Periods
Additional Spending
In This Round
(Billions of Dollars)
1,000
600
360
216
130
78
47
28
17
10
Additional Spending
in All Rounds
(Billions of Dollars)
1,000
1,600
1,960
2,176
2,306
2,384
2,431
2,459
2,476
2,486
.
.
.
.
Very close to 14
Very close to 2,500
12
Figure 11 A Graphical View of the Multiplier
Real
Aggregate
Expenditure 9,000
($ Billions)
AE2
F
AE1
8,000
7,000
6,000
E
5,000
4,000
Increase in
Equilibrium
GDP
3,000
2,000
$2,500
Billion
1,000
45°
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
ECONOMICS 2e / HALL & LIEBERMAN
CHAPTER 23 / THE SHORT-RUN MACRO MODEL
© 2001 South-Western
Real GDP
($ Billions)
13