Chapter 10:Self-Adjustment or Instability?McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.13e讯乎毒抖亿翻酶杆我祟汪盛额幽般餐淑顽笆熬裂榨口卖椭却览塞品土狸贡Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-2The DebateJohn Maynard Keynes challenged the classical assertion that the economy would self-adjust to full employment. Keynes said that there would be no automatic self-adjustment; the economy could stagnate in persistent unemployment or have continuing inflation.This debate has continued since the 1930s and is ongoing. 其苗奶驴拿慷众稍尽缮仇簿甸疯锑愚昏绵点净椿摔置苞瘸着惦层拾孺烩蕊Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-3Learning Objectives10-01. Know the sources of circular flow leakages and injections.10-02. Know what the multiplier is and how it works.10-03. Know how recessionary and inflationary GDP gaps arise.洛詹代擂陕柬盯鹃味敌讼奈岁胞驰吧蜀频令艳峡坞酶栖酗抓片谍顾昧账脾Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-4LeakagesLeakage: income that is generated in production but is diverted out of the circular flow.Saving (both household and business).Imports.Taxes (both household and business). 爵督廉靳牢棠豌笆鼓豆生佑特作嘉汤午临掣愤盲骚块貉娄粗患科佰邱赌洒Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-5InjectionsInjection: an addition of spending in the circular flow.Investment spending.Government spending.Exports.文三黄近沸馅柬爹酵暮井餐兢翘世墨冷虎逗功汰筷拈吵棉泥衣袍江确象捡Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-6Leakages and InjectionsFor macro equilibrium, leakages must equal injections.When this occurs, output supplied equals output demanded.Ideally, this should occur at full-employment GDP.总坟默夕固品喂仲掌住蓄功多耍漱侯杏橡菩嗣犹疗暇咬贰计泳卑拉鲤羚糠Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-7Self-Adjustment?Classical economists assumed that leakages always equaled injections.For example, they use flexible interest rates as the mechanism to ensure this.If saving (leakage) exceeds investment (injection) Available funds to borrow increase and interest rates fall, which spurs more investment borrowing.If investment (injection) exceeds saving (leakage) Available funds to borrow decrease and interest rates rise, which inhibits investment borrowing.稿赖芦鄙疼戳筐厚羡艳笋招蜜郎仇原泊抚虞千最嘶封献艺鳖枣帕霄宛速襟Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-8Self-Adjustment? Keyness ResponseChanging expectations: As saving increases, consumption decreases and GDP falls. Business outlook is gloomy.Business investment spending would more likely fall rather than rise.塔槐纱织瓣隧忿检佯朴溪箍蜀糊早磕澎浅蕾者囚犀插懂萨梆膘池嘻碾拯够Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-9Self-Adjustment? Classical economists said that any rising inventory of goods would trigger falling prices.This would lead to increased selling to reduce the undesired inventory.This increased selling would shift AD right toward the GDP needed at the full-employment level.澜荒搏慷增睁吉瑚爽魁鸵惧威潦钞疼恃惕岭参抨宅野贿藤愁欠朋赵扫塌甸Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-10Self-Adjustment? Keyness ResponseChanging expectations: More would be bought at lower prices, butAs prices fall, profits diminish and businesses will further reduce production and eliminate investment plans.They would produce no more until the undesired inventory is sold. This leads to yet more layoffs and to equilibrium at high unemployment.肪闺肯悯滨满嵌艺惕臀宾鼻逐絮叠凶砂赵晕淮闯吾县轰拴诀高毯伙杏俗违Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-11Self-Adjustment?Rather than adjusting back toward full employment, Keynes saw the economy becoming more unstable as businesses react to declining sales, falling prices, and lowered expectations of the future.丑绞豢傻靡抉盗饶篇弗若钧吝酣舒庞龄趋猴撩炉玲简爹甘种俱脸拿棕苍奇Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-12The Effect on Household IncomeReduced production means layoffs, and that means decreased household income.Reduced income means less spending, and AD shifts further to the left away from full employment.A relatively small problem could snowball into a much larger problem.组狼豌村署峭锣首目业消跺黄栗秧减氢宋伶沸挤砸贷惋倘虫死郑赦戳级玉Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-13The Multiplier ProcessSteps in the multiplier process:1. Let investment decline.2. This leaves unsold output.3. Production is cut back.4. Income decreases.5. Consumer spending decreases.6. Go to step 2 above.The eventual decrease in spending will be much larger than the initial decline in spending.The eventual shift of AD to the left will be much larger than the initial shift to the left.赔议装店得栽草瓤手飞讨腹瓦宴瑞藩饯灼滁矣痪蔷寥帧畴随碧谍纶苯脚都Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-14The Multiplier ProcessMultiplier: the multiple by which an initial change in spending will alter the total expenditure after all spending cycles.Example: If MPC = 0.75, the multiplier is 1/(1-0.75) = 1/0.25 = 4.The impact of an initial spending change will be multiplied by a factor of 4. 1Multiplier = 1 - MPC鹅发食贯剔灯嘱丫孙暑短搀印胀照隔到弟跟襟掐迸兼罢箱刃屠点途催硅萎Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-15The Multiplier ProcessThe multiplier is governed by the size of the MPC. If the MPC decreases, then the multiplier gets smaller.If the MPC increases, then the multiplier gets larger.凉哼纬崇秒喊类漂啄说这俄渡吁燕呻刽榨昧县神谤颤户嘻蜀灿风词美汲皂Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-16Keynesian Adjustment ProcessProducers cut output and employment when output exceeds AD at the current price level (leakages exceed injections).The resulting loss of income causes a consumer spending decline.This leads to further production cutbacks, more job loss, more lost income, and still less consumption.AD shifts further to the left as the multiplier process goes into effect.锻杂脱瘦泉签说统淀凋伴豌瞬榨沂菏粘县茬椒激果肢搀思沸饱信偷言期习Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-17Recessionary GDP GapThe recessionary GDP gap equals the difference between equilibrium GDP (QE) and full-employment GDP (QF).It shows unused production capacity as the economy is underproducing.旬滴涟灯悯泣盆巫揣菊洪旷科扬躁酸龚奠肿烈峨爱蔑隐鹿料憾鸳畏偿冀免Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-18The Unemployment - Inflation Trade-OffThe AS curve slopes upward.An AD increase causes both output and prices to rise, and unemployment to fall.Because of rising prices, the economy must move to point h, not point f, to close the recessionary GDP gap.阁趟腮仍深捞透勒硼枯静立锭插门格伎再雌狙鼠疑惺夹延耐震剑菱徽芋哺Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-19Inflationary GDP GapThe inflationary GDP gap equals the difference between equilibrium GDP (QE) and full-employment GDP (QF).It shows the economy producing at a GDP level above full-employment GDP, with the economy subject to inflationary pressure.仍度巾廉民姿健峰驮扎渝仗尊肚错申汹泻祸发陈拽殷耸恼辛转爵舍潦剩班Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-20Demand-Pull InflationAn excessive increase in an injection or decrease in a leakage can cause the economy to overheat.AD pushes too far to the right, generating an inflationary GDP gap.Demand-pull inflation: prices rise due to excessive AD.Instability could cause an inflationary spiral. 勾射拂琉爵已婉全枫哉缀袖滚少骆晶娇艳过棺迭蜘吼堕忱郭刺竖励禄活拒Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-21The Multiplier Process1.Let investment increase and shift AD right.2.Inventory depletes (a warning sign of inflation) and prices rise.3.Production is increased.4.Income increases.5.Consumer spending increases.6.Go to step 2 above.The eventual increase in spending will be much larger than the initial increase in spending.The eventual shift of AD to the right will be much larger than the initial shift to the right. 抨非胞哟驴粒笺虑误沫们煮属辜柠冀橇仆淑同陇秒陛赦搂钠挤但丫苇套滔Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育10-22Booms and BustsKeynesian analysis concluded that the economy is vulnerable to abrupt changes in spending behavior and wont self-adjust to a desired macro equilibrium.Changing expectations for both consumers and businesses adjust their market activities, which can lead to a worsening condition.Abrupt shifts of AD cause the recurring business cycles, resulting in a series of economic booms and busts. 碍聋怠廷灯怂瞻选乖咽瘤桌杆闪鬃莉烬昔膏铺夹乎漆愤络影凸搏胆吾酒币Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育Self-Adjustment or Instability - McGraw-Hill Higher ducation自调整或不稳定-麦格劳山高等教育