Ngân hàng, tín dụng - Chapter 23: The keynesian framework
Transactions Demand and Monetary Policy
(Figure 23.10) (Cont.)
– An increase in income
• This will cause a rightward shift of the demand curve
• Shift of money demand curve will increase interest rates
• However, actions by central bank to increase the supply of
money might prevent an increase in interest rates
• A growing economy will need a balanced growth of
money to prevent interest rates from rising
21 trang |
Chia sẻ: huyhoang44 | Lượt xem: 564 | Lượt tải: 0
Bạn đang xem trước 20 trang tài liệu Ngân hàng, tín dụng - Chapter 23: The keynesian framework, để xem tài liệu hoàn chỉnh bạn click vào nút DOWNLOAD ở trên
1Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Chapter 23
The Keynesian
Framework
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-2
Learning Objectives
• See the differences among saving, investment, desired
saving, and desired investment and explain how these
differences can generate short run fluctuations in real
GDP
• Understand the Keynesian cross and determination of
an equilibrium level of income
• Analyze autonomous changes in macroeconomic
variables and their potential to cause economic
fluctuations
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-3
Learning Objectives (Cont.)
• Define the liquidity preference theory and its
role in determining interest rates
• Comprehend the Keynesian theory of monetary
policy and its role in impacting the economy
• Understand the Keynesian version of aggregate
demand/aggregate supply analysis
2Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-4
Introduction
• In 1936, John Maynard Keynes published The General
Theory of Employment, Interest and Money
• Concerned with short-run as compared to the Classical
Economists who focused on long-run
• Argued that free market forces could take considerable
time to adjust
• In the short run there could be lengthy periods of
underemployment
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-5
Introduction (Cont.)
• Preoccupied with what determined the level of real
economic activity during long periods of recession or
depression
• If economy were sufficiently depressed, could
experience increases in real output without any increase
in the price level
• Assumed that the price level is fixed
• Focused on aggregate demand and supply since full
employment was irrelevant
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-6
When Saving Doesn’t Equal
Investment
• Classical economists stated that equilibrium
existed when total saving desired by households
equals total investment desired by firms
• However, Keynes asked what happens when
desired savings exceeds desired investment and
prices were not free to adjust
– Prices are sticky and will not decline as inventories
build up
3Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-7
When Saving Doesn’t Equal
Investment (Cont.)
– Wages are resistant to decreases
– Since interest rates are determined in the money
market, fluctuations will not necessarily equilibrate
desired saving and desired investment
– Therefore, since prices will not fall, both real
output and income will decline until desired
savings equaled desired investment at a lower
equilibrium GDP
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-8
Consumption
and Simple GDP Determination
• Figure 23.1 represents the Keynesian cross
diagram
• Real income and real output are measured in the
horizontal axis (Income: Y)
• Different types of expenditures are measured on
the vertical (Expenditure: E)
• A 45 degree line from origin traces the
equilibrium condition where E = Y
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-9
FIGURE 23.1 Spending determines income.
4Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-10
Consumption and Simple GDP
Determination (Cont.)
• Expenditure takes two forms—consumption and
investment
– Consumption Function (C)
• Consumption is a linear function of income (Y)
• C = a + bY
• “b” is equal to the slope of the consumption line
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-11
Consumption and Simple GDP
Determination (Cont.)
– Consumption Function (C) (Cont.)
• Marginal propensity to consume (MPC)
– The slope of the consumption functions (b)
– how much additional consumption would result from a $1
increase in income and is always less than 1
• “a” of the consumption function represents consumption
level if income were equal to zero
• The consumption function will shift up or down if the
value lf “a” changes due to increased/decreased personal
wealth
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-12
Consumption and Simple GDP
Determination (Cont.)
– Investment (I)
• A relationship between the rate of interest on bonds and
the level of investment spending by business firms
• A negative relationship—when interest rates fall,
investment spending will increase
• Entrepreneurs invest as long as the rate of return on
investment exceeds the rate of interest
• If the rate of interest is given, the level of investment
will be constant and not a function of income
5Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-13
Consumption and Simple GDP
Determination (Cont.)
• Total expenditure is equal to the sum of consumption
which varies with income and investment which is
constant (E = C + I)
• At points along the 45 degree line, total expenditure (E)
is equal to total income (Y)
• Since desired savings is equal to Y – C and E = Y, it
follows that along the 45 degree line desired savings is
equal to desired investment (S = I)
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-14
Consumption and Simple GDP
Determination (Cont.)
• Savings Function (Figure 23.2)
– The marginal propensity to save (MPS) is equal to
1 – MPC and less than 1
– This represents the slope of the savings function
which graphs a linear relationship between savings
and income
S = -a + (1 - b)Y
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-15
FIGURE 23.2 Saving and
investment determine income.
6Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-16
Consumption and Simple GDP
Determination (Cont.)
• Savings Function (Figure 23.2) (Cont.)
– The economy is in equilibrium at an income level
where the savings function is equal to a fixed
investment
– This level of income is identical to the level where
the total expenditure function crosses the 45
degree line
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-17
Changes in GDP
• The equilibrium level of income will not change
unless there is a change in the consumption or
investment functions
• This equilibrium would be a desirable outcome
if level of income (output) was at full
employment level
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-18
Changes in GDP (Cont.)
• Keynes argued that since the level of investment is
highly unstable, it is likely that the equilibrium output
level will not equal the full employment level of output
• If entrepreneurs became uncertain about the future,
investment spending would decline (total expenditure
function would shift down) and equilibrium would be
established at a lower level of GDP
7Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-19
Changes in GDP (Cont.)
• Multiplier—actual decline in GDP will be a
multiple of the reduction in investment spending
– When investment declines, income begins to decline
– This induces a reduction in consumer spending,
further lowering the level of income
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-20
)b(
Multiplier −= 1
1
Changes in GDP (Cont.)
• Multiplier (Cont.)
– The total change in income is related to the initial
decline in investment through the multiplier, which
takes the following form
Where: b = marginal propensity to spend
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-21
b
IY −Δ=Δ 1
1
Changes in GDP (Cont.)
• Multiplier (Cont.)
– Therefore, the total change in income resulting from a
change in investment is:
8Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-22
Autonomous versus Induced
Changes in GDP
• Figures 23.3 and 23.4 suggest that anything that shifts
the position of the total desired spending function will
alter GDP
• Such shifts are produced by autonomous spending
changes which are independent of GDP
• However, the multiplier was based on the idea that
autonomous spending changes will induce further
changes in spending
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-23
FIGURE 23.3 A decline in investment spending
reduces Y by a multiple of the change in investment.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-24
FIGURE 23.4 A decline in investment
spending reduces Y by a multiple of the
change in investment.
9Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-25
Autonomous versus Induced
Changes in GDP (Cont.)
• The larger the marginal propensity to spend (b),
the greater the induced change in spending
• Keynes argued that consumption spending is
largely induced, while investment spending is
largely autonomous—dependent on expected
rate of return on capital and rate of interest
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-26
Autonomous versus Induced
Changes in GDP (Cont.)
• Exports and Imports
– The multiplier expression can be modified to take
account of changes in other components of spending
– Exports add to aggregate demand and imports
reduce aggregate demand and these changes are
impacted by the multiplier
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-27
Government to the Rescue
• Keynes was concerned that changes in autonomous
spending would cause wide fluctuations in economic
activity
• Government spending was necessary to offset the
changes in autonomous spending and restore the
economy to full employment
• Therefore, total spending is the sum of consumer,
investment, and government expenditures
10
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-28
Government to the Rescue (Cont.)
• Figure 23.5 demonstrated the effect of additional
government spending to raise the income level of the
economy, ideally to the full employment level
– Government spending (G) is added to C + I
– This increases spending in the economy to
C + I + G
– Total impact of additional government spending is enhanced
through the multiplier
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-29
FIGURE 23.5 Adding government
spending raises income.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-30
Government to the Rescue (Cont.)
• Figure 23.6 shows the effect of increasing taxes
which lowers income
– Government usually finances spending by taxation
– Taxation will reduce disposable income which
further reduces income through the multiplier
11
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-31
FIGURE 23.6 Introducing taxes lowers
income.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-32
Government to the Rescue (Cont.)
– Government spending and taxes can be changed by
government policy to buffer the effects of changes in
autonomous spending
– Fiscal policy—deliberate manipulation of taxes or
government spending to achieve a desired level of
income consistent with full employment
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-33
Money and Rate of Interest
• Keynes stated that interest rates were determined by the
supply of and demand for money rather than by savings
and investment
• Money might affect the level of real economic activity,
only to the extent that it influenced the rate of interest
• Changes in the interest would alter desired investment
spending and thereby the change the level of GDP
12
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-34
Money and Rate of Interest (Cont.)
• The Keynesian system of income determination deals
only with flows in the economy—consumption, saving,
investment and income over a period of time
• These flows deal in real goods and services and not
financial transactions
• Keynes introduced the idea that money is a financial
asset, held in an individual’s portfolio and is part of an
individual’s wealth
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-35
Money and Rate of Interest (Cont.)
• Demand for Money (Figure 23.7)
– Public’s portfolio consists of two types of assets—
money and all other assets (represented by bonds)
– Money is liquid—risk free, but does not earn interest
– However, the price of bonds can vary in terms of
money, so the owner can suffer capital losses or reap
capital gains, depending on changes in interest rates
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-36
FIGURE 23.7 Keynesian interest theory.
13
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-37
Money and Rate of Interest (Cont.)
• Demand for Money (Figure 23.7) (Cont.)
– Money is a riskless asset, and bonds are risky assets
– Therefore, more bonds in a portfolio means more risk
– The decision regarding the composition of a portfolio
between money and bonds will be determined by the overall
expected return, the “average” interest rate, on bonds
– The demand for money, liquidity preference, is a function of
the rate of interest
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-38
Money and Rate of Interest (Cont.)
• Demand for Money (Figure 23.7) (Cont.)
– The demand for money is negatively sloped with respect to
interest
– Speculative demand for money—individuals hold more
money (fewer bonds) at low interest rates since they expect
interest rates to rise in the future which will cause a capital
loss on bond holdings
– At low rates of interest, individuals have a small opportunity
cost of forgoing interest by holding money and prefer
liquidity
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-39
Money and Rate of Interest (Cont.)
• Demand for Money (Figure 23.7) (Cont.)
– Individuals are risk averse— hold bonds only if rate
of interest is high enough to compensate for the risk
of holding bonds
– The supply of money is assumed to be constant and
does not vary with interest rates
– The equilibrium level of interest is the
intersection of the supply and demand curves
(Figure 23.7)
14
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-40
Monetary Policy
• Changes in the demand for or supply of money
will cause a change in equilibrium rate of
interest and impact investment spending
• Cost of Capital Effect (Figure 23.8)
– Demonstrates the effect of increasing the money
supply relative to equilibrium interest rates
– Demand for money does not change, only the supply
of money increases
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-41
FIGURE 23.8 Effect on the interest
rate of changing the money supply.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-42
Monetary Policy (Cont.)
• Cost of Capital Effect (Figure 23.8) (Cont.)
– Increased money supply indicates cash balances are
too high so individuals purchase stocks which
increases the price and lowers the interest rate
– A lower interest rate will stimulate investment
spending and higher GDP via the multiplier
– Decrease in the money supply would have the
opposite effect
15
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-43
Monetary Policy (Cont.)
• Negative relationship between the demand for
money and the rate of interest provides a link
between changes in the supply of money and level of
economic activity
• Liquidity Trap (Figure 23.9)
– However, under certain economic conditions, increased
supply of money will not lower the rate of interest
– At low rates of interest the demand for money becomes
perfectly horizontal
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-44
FIGURE 23.9 Keynesian liquidity trap.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-45
Monetary Policy (Cont.)
• Liquidity Trap (Figure 23.9) (Cont.)
– At these low rates, individuals expect interest rates
to increase and consider holding bonds too risky
– Liquidity trap—any increase in money supply will
simply be held by the public (hoarding) and none of
the increased liquidity would spill over to the bond
market
– In this range of money demand, monetary policy is
completely ineffective
16
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-46
Monetary Policy (Cont.)
• Wealth Effect
– It is possible that consumers may change their
spending in response to variations in the interest rate
– Lowering of interest results in higher prices of bonds
and consumers feel wealthier
– Based on this wealth effect, consumers will spend
more, thereby causing the consumption function to
shift upward
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-47
Monetary Policy (Cont.)
• Monetary Policy and International Trade
(Exchange Rate Effect)
– Although exports and imports are small segments of U.S.
economy, there is a large impact of monetary policy on GDP
through net exports
– Effect of a change in money supply
• Decrease in money supply causes interest rates to rise
• This increase relative to interest rates in other countries will encourage
foreigners to buy U.S. bonds to enjoy a higher return
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-48
Monetary Policy (Cont.)
• Monetary Policy and International Trade
(Exchange Rate Effect) (Cont.)
– Effect of a change in money supply (Cont.)
• Purchase U.S. dollars with foreign exchange which drives up value of
the dollar under a flexible exchange rate system
• A stronger dollar will discourage exports and encourage imports
• Net exports decline when domestic interest rates rise, driving down
GDP
• This international exchange rate effect strengthens the efforts of the
government to slow down economic activity
17
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-49
Monetary Policy (Cont.)
• Summary of the three effects
– Transmission mechanism of monetary policy—
Three components of monetary policy
• Cost of capital effect—influences investment through the
cost to businesses of raising capital
• Wealth effect—operates through interest rates on
consumer wealth which effects consumer spending
• Exchange rate effect—operates through interest rates and
foreign exchange rate to effect net exports
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-50
Monetary Policy (Cont.)
• Transactions Demand and Monetary Policy (Figure
23.10)
– Keynes raised the idea of a speculative demand for money
that is related to the rate of interest
– Increase in GDP leads to an increase in amount of money
demanded--people need additional cash to carry out a higher
level of transactions
– Changes in the liquidity preference will cause equilibrium
rate of interest to change—increased liquidity would increase
interest rates
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-51
FIGURE 23.10 A shift in the demand for
money changes the interest rate.
18
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-52
Monetary Policy (Cont.)
• Transactions Demand and Monetary Policy
(Figure 23.10) (Cont.)
– An increase in income
• This will cause a rightward shift of the demand curve
• Shift of money demand curve will increase interest rates
• However, actions by central bank to increase the supply of
money might prevent an increase in interest rates
• A growing economy will need a balanced growth of
money to prevent interest rates from rising
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-53
Monetary Policy (Cont.)
• Transactions Demand and Monetary Policy
(Figure 23.10) (Cont.)
– The transaction demand for money is probably
affected by the interest rate as well as by income—
higher interest rates will reduce the demand for
transaction balances
– Greater use of credit cards reduces the demand for
money, thereby lowering interest rates, permitting
investment and GDP to increase
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-54
Monetary Policy (Cont.)
• Expectations and Monetary Policy
– It is generally assumed that expectations are
exogenous—determined outside the system
– Assuming the central bank makes changes in the
money supply and these changes are totally
unanticipated, monetary policy alters the interest
rate according on the conditions just described
19
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-55
Monetary Policy (Cont.)
• Expectations and Monetary Policy (Cont.)
– However, if the actions of the Federal Reserve are
completely anticipated, individuals will make
portfolio adjustments before the Fed enacts the
policy change
– The result is that the anticipated monetary policy
change will alter interest rates before it is
implemented
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-56
Aggregate Demand and Supply
• The Keynesian assumption of fixed prices
changes the shape of the aggregate supply curve.
• Figure 23.11 displays the Keynesian aggregate
supply curve which is different than that
envisioned by the classical economists
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-57
FIGURE 23.11 Increase in aggregate demand
raises real income or prices, depending on the
shape of aggregate supply.
20
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-58
Aggregate Demand and Supply
(Cont.)
• This aggregate supply curve is in two parts
– A horizontal segment which reflects the fact that prices do not
increase when the economy is at less than full employment
– A vertical segment, which is the classical school’s supply
schedule, showing only prices increase after full employment
output is reached
• If aggregate demand increases in the horizontal portion
the result will be higher real output and lower
unemployment at a constant price level
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-59
Aggregate Demand and Supply
(Cont.)
• This was the range of the curve that Keynes was
concerned with—levels of employment well below the
full employment level
• In this range, actions by the government to stimulate
output will result in real changes to the economy
• If the economy is operating at or near full employment,
actions by the government will result in upward
pressure on prices—inflation
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-60
Aggregate Demand and Supply
(Cont.)
• Supply-side policies
– This is relevant in the full employment range of
aggregate supply
– Since the productive capacity is determined by
supply of labor, capital and technology, policies that
increase these factors will increase potential real
output
21
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-61
Aggregate Demand and Supply
(Cont.)
• Supply-side policies (Cont.)
– The government does not directly control any of these, but
tax policies can influence the willingness of households and
business firms to supply labor and invest in capital
– According to supply-siders, the main consequence of
reducing tax rates is increased production incentives which
shifts the vertical portion of the aggregate supply curve to the
right
Các file đính kèm theo tài liệu này:
- ch23_5131.pdf