经济学英文教学课件：KW2_Ch33 Macroeconomics Events and Ideas

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1、1 of 41chapter:332009 Worth PublishersMacroeconomics:Events and Ideas2 of 41WHAT YOU WILL LEARN IN THIS CHAPTERWhy classical macroeconomics wasnt adequate for the problems posed by the Great DepressionHow Keynes and the experience of the Great Depression legitimized macroeconomic policy activismWhat

2、 monetarism is and its views about the limits of discretionary monetary policyHow challenges led to a revision of Keynesian ideas and the emergence of new classical macroeconomicsThe elements of the modern consensus,and the main remaining disputes3 of 41The Feds Response to the 2001 Recession4 of 41

3、Classical MacroeconomicsClassical macroeconomics asserted that monetary policy affected only the aggregate price level,not aggregate output.Classical macroeconomics asserted that the short run was unimportant.According to the classical model,prices are flexible,making the aggregate supply curve vert

4、ical even in the short run.5 of 41Classical MacroeconomicsAs a result,an increase in the money supply leads,other things equal,to an equal proportional rise in the aggregate price level,with no effect on aggregate output.Increases in the money supply lead to inflation,and thats all.6 of 41Classical

5、MacroeconomicsBy the 1930s,measurement of business cycles was a well-established subject,but there was no widely accepted theory of business cycles.7 of 41 ECONOMICS IN ACTIONWhen Did the Business Cycle Begin?8 of 41The Great Depression and the Keynesian RevolutionIn 1936,Keynes presented his analys

6、is of the Great Depressionhis explanation of what was wrong with the economys alternatorin a book titled The General Theory of Employment,Interest,and Money.The school of thought that emerged out of the works of John Maynard Keynes is known as Keynesian economics.9 of 41Classical versus Keynesian Ma

7、croeconomics10 of 41FOR INQUIRING MINDSThe Politics of KeynesThe term Keynesian economics is sometimes used as a synonym for leftwing economics.Keynes himself was no socialistand not much of a leftist.At the time The General Theory was published,many intellectuals in Britain believed that the Great

8、Depression was the final crisis of the capitalist economic system and that only a government takeover of industry could save the economy.Keynes,in contrast,argued that all the system needed was a narrow technical fix.In that sense,his ideas were pro-capitalist and politically conservative.11 of 41FO

9、R INQUIRING MINDSThe Politics of KeynesWhat is true is that the rise of Keynesian economics in the 1940s,1950s,and 1960s went along with a general enlargement of the role of government in the economy,and those who favored a larger role for government tended to be enthusiastic Keynesians.Conversely,a

10、 swing of the pendulum back toward free-market policies in the 1970s and 1980s was accompanied by a series of challenges to Keynesian ideas,which we describe later in this chapter.12 of 41Policy to Fight RecessionsThe main practical consequence of Keyness work was that it legitimized macroeconomic p

11、olicy activismthe use of monetary and fiscal policy to smooth out the business cycle.13 of 41 ECONOMICS IN ACTIONThe End of the Great DepressionThe basic message many of the young economists who adopted Keyness ideas in the 1930s took from his work was that economic recovery requires aggressive fisc

12、al expansiondeficit spending on a large scale to create jobs.And that is what they eventually got,but it wasnt because politicians were persuaded.Instead,what happened was a very large and expensive war,World War II.14 of 41 ECONOMICS IN ACTIONFiscal Policy and the End of the Great Depression15 of 4

13、1 ECONOMICS IN ACTIONThe End of the Great DepressionFigure 33-3 shows the U.S.unemployment rate and the federal budget deficit as a share of GDP from 1930 to 1947.As you can see,deficit spending during the 1930s was on a modest scale.In 1940,as the risk of war grew larger,the United States began a l

14、arge military buildup,and the budget moved deep into deficit.After the attack on Pearl Harbor on December 7,1941,the country began deficit spending on an enormous scale.16 of 41Challenges to Keynesian EconomicsMonetarism asserted that GDP will grow steadily if the money supply grows steadily.It call

15、ed for a shift from monetary policy rule to that of a discretionary monetary policy.It argued that GDP would grow steadily if the money supply grew steadily.Monetarism was influential for a time,but was eventually rejected by many macroeconomists.17 of 41Fiscal Policy with a Fixed Money Supply18 of

16、41MonetarismWhen the central bank changes interest rates or the money supply based on its assessment of the state of the economy,it is engaged in discretionary monetary policy.A monetary policy rule is a formula that determines the central banks actions.The velocity of money is the ratio of nominal

17、GDP to the money supply.The velocity equation:M V=P Y 19 of 41MonetarismMonetarists believed that V was stable,so they believed that if the Federal Reserve kept M on a steady growth path,nominal GDP would also grow steadily.20 of 41Inflation and the Natural Rate of UnemploymentThe natural rate of un

18、employment is also the non-accelerating-inflation rate of unemployment,or NAIRU.According to the natural rate hypothesis,because inflation is eventually embedded into expectations,to avoid accelerating inflation over time the unemployment rate must be high enough that the actual inflation rate equal

19、s the expected inflation rate.21 of 41Inflation and the Natural Rate of UnemploymentThe natural rate hypothesis limits the role of macroeconomic policy in stabilizing the economy.The goal is not to seek a permanently lower unemployment rate,but to keep it stable.The natural rate hypothesis became al

20、most universally accepted.22 of 41The Political Business CycleA political business cycle results when politicians use macroeconomic policy to serve political ends.Fear of a political business cycle led to a consensus that monetary policy should be insulated from politics.23 of 41 ECONOMICS IN ACTION

21、The Feds Flirtation with MonetarismIn the late 1970s,the Fed adopted a monetary policy rule,began announcing target ranges for several measures of the money supply,and stopped setting targets for interest rates.Most people interpreted these changes as a strong move toward monetarism.In 1982,however,

22、the Fed turned its back on monetarism.Since 1982 the Fed has pursued a discretionary monetary policy,which has led to large swings in the money supply.Why did the Fed flirt with monetarism,then abandon it?24 of 41 ECONOMICS IN ACTIONThe Feds Flirtation with MonetarismThe turn to monetarism largely r

23、eflected the events of the 1970s,when a sharp rise in inflation broke the perceived trade-off between inflation and unemployment and discredited traditional Keynesianism.The turn away from monetarism also reflected events:as shown Figure 33-5,the velocity of money,which had followed a smooth trend b

24、efore 1980,became erratic after 1980.This made monetarism seem like less of a good idea.25 of 41 ECONOMICS IN ACTIONThe Velocity of Money26 of 41Rational Expectations,Real Business Cycles,andNew Classical MacroeconomicsNew classical macroeconomics is an approach to the business cycle.It returns to t

25、he classical view that shifts in the aggregate demand curve affect only the aggregate price level,not the aggregate output.27 of 41Rational ExpectationsRational expectations is the view that individuals and firms make decisions optimally,using all available information.The idea of rational expectati

26、ons did serve as a useful caution for macroeconomists who had become excessively optimistic about their ability to manage the economy.28 of 41Real Business CyclesAccording to new Keynesian economics,market imperfections can lead to price stickiness for the economy as a whole.Real business cycle theo

27、ry says that fluctuations in the rate of growth of total factor productivity cause the business cycle.29 of 41FOR INQUIRING MINDSSupply-Side EconomicsDuring the 1970s a group of economic writers began propounding a view of economic policy that came to be known as“supply-side economics.”The core of t

28、his view was the belief that reducing tax rates,and so increasing the incentives to work and invest,would have a powerful positive effect on the growth rate of potential output.The main reason for this dismissal is lack of evidence.Almost all economists agree that tax cuts increase incentives to wor

29、k and invest,but attempts to estimate these incentive effects indicate that at current U.S.tax levels they arent nearly strong enough to support the strong claims made by supply-siders.30 of 41 ECONOMICS IN ACTIONTotal Factor Productivity and the Business CycleReal business cycle theory argues that

30、fluctuations in the rate of growth of total factor productivity are the principal cause of business cycles.In the early days of real business cycle theory,proponents argued that productivity fluctuations are entirely the result of uneven technological progress.Critics pointed out,however,that in rea

31、lly severe recessions,total factor productivity actually declines.Some economists argue that declining total factor productivity during recessions is a result,not a cause,of economic downturns.Its now widely accepted that some of the correlation between total factor productivity and the business cyc

32、le is the result of the effect of the business cycle on productivity,rather than the reverse.31 of 41 ECONOMICS IN ACTIONTotal Factor Productivity and the Business Cycle32 of 41Five Key Questions About Macroeconomic PolicyClassical macroeconomicsKeynesian macroeconomicsMonetarismModern consensusIs e

33、xpansionary monetary policy helpful in fighting recessions?NoNot veryYesYes,except in special circumstancesIs expansionary fiscal policy effective in fighting recessions?NoYesNoYesCan monetary and/or fiscal policy reduce unemployment in the long run?NoYesNoNoShould fiscal policy be used in a discret

34、ionary way?NoYesNoNo,except in special circumstancesShould monetary policy be used in a discretionary way?NoYesNoStill in dispute33 of 41Current DebateThere are continuing debates about the appropriate role of monetary policy.Some economists advocate explicit inflation targets,but others oppose them

35、.Inflation targeting requires that the central bank try to keep the inflation rate near a predetermined target rate.Economists debate about whether monetary policy should take steps to manage asset prices.Economists debate about what kind of unconventional monetary policy,if any,should be adopted to

36、 address a liquidity trap.34 of 41The Clean Little Secret of MacroeconomicsThe clean little secret of modern macroeconomics is how much consensus economists have reached over the past 70 years.35 of 41 ECONOMICS IN ACTIONAfter the BubbleDuring the 1990s,many economists worried that stock prices were

37、 irrationally high,and these worries proved justified.In 2001 the plunge in stock prices helped push the United States into recession.The Fed responded with large,rapid interest rate cuts.But should it have tried to burst the stock bubble when it was happening?Although the economy began recovering i

38、n late 2001,the recovery was initially weak.Also the Fed had to cut the federal funds rate to only 1%uncomfortably close to 0%.36 of 41 ECONOMICS IN ACTIONAfter the BubbleIn other words,the events of 20012003 probably intensified the debate over monetary policy and asset prices,rather than resolving

39、 it.The bursting of the housing bubble after 2006 offered another test.The case of the housing bubble also highlighted the problem of identifying bubbles as they inflate.In late 2004,Alan Greenspan,then Fed Chairman,pronounced a“severe distortion”in housing prices“most unlikely.”It seems safe to pre

40、dict that,in the future,the Fed will be more inclined to take asset prices into account when setting monetary policy.37 of 41SUMMARY1.Classical macroeconomics asserted that monetary policy affected only the aggregate price level,not aggregate output,and that the short run was unimportant.By the 1930

41、s,measurement of business cycles was a well-established subject,but there was no widely accepted theory of business cycles.2.Keynesian economics attributed the business cycle to shifts of the aggregate demand curve,often the result of changes in business confidence.Keynesian economics also offered a

42、 rationale for macroeconomic policy activism.38 of 41SUMMARY3.In the decades that followed Keyness work,economists came to agree that monetary policy as well as fiscal policy is effective under certain conditions.Monetarism,a doctrine that called for a monetary policy rule as opposed to discretionar

43、y monetary policy,and which arguedbased on a belief that the velocity of money was stablethat GDP would grow steadily if the money supply grew steadily,was influential for a time but was eventually rejected by many macroeconomists.4.The natural rate hypothesis became almost universally accepted,limi

44、ting the role of macroeconomic policy to stabilizing the economy rather than seeking a permanently lower unemployment rate.Fears of a political business cycle led to a consensus that monetary policy should be insulated from politics.39 of 41SUMMARY5.Rational expectations suggests that even in the sh

45、ort run there might not be a trade-off between inflation and unemployment because expected inflation would change immediately in the face of expected changes in policy.Real business cycle theory claims that changes in the rate of growth of total factor productivity are the main cause of business cyc

46、les.Both of these versions of new classical macroeconomics received wide attention and respect,but policy makers and many economists havent accepted the conclusion that monetary and fiscal policy are ineffective in changing aggregate output.6.New Keynesian economics argues that market imperfections

47、can lead to price stickiness,so that changes in aggregate demand have effects on aggregate output after all.40 of 41SUMMARY7.The modern consensus is that monetary and fiscal policy are both effective in the short run but that neither can reduce the unemployment rate in the long run.Discretionary fis

48、cal policy is considered generally unadvisable,except in special circumstances.8.There are continuing debates about the appropriate role of monetary policy.Some economists advocate the explicit use of an inflation target,but others oppose it.Theres also a debate about whether monetary policy should take steps to manage asset prices and what kind of unconventional monetary policy,if any,should be adopted to address a liquidity trap.41 of 41The End of Chapter 33coming attraction:Chapter 34:Open-Economy Macroeconomics