巴罗宏观经济学答案Chapter 16

巴罗宏观经济学答案Chapter 16

Chapter16:MoneyandBusinessCyclesII:StickyPricesandNominalWageRatesAnswerstoreviewquestions,pg.4121.Involuntaryunemploymentoccurswhenqualifiedjobseekersarewillingtoworkatthemarketwagerate,butcannotdosobecauseofthelackofjoboffers.Intheflexiblepricemodel,involuntaryunemploymentiseliminatedbyafallingrealwage,butinthestickynominalwagemodeldiscussedhere,therealwagedoesnotclearthemarket.2.Foragivenlevelofmoneydemand,anincreaseinthesupplyofmoneywillcreateadisequilibriuminthemoneymarket;peoplewillhavehighermoneybalancesthantheywishtohold.Inthatcase,peoplewillseektoadjusttheirportfoliosbypurchasingmorebonds(amongotherthings),causingthebondpricestoriseandnominalinterestratestofall.IntheU.S.,themoneysupplywouldincreasewhentheFederalReserveBankingSystemengagesinopenmarketoperations,usingbondpurchasestoinjectmoneyintotheeconomy.Thisleadstohigherbondpricesandlowernominalrates.Inaworldofflexibleprices,thesehighernominalrateswouldbeoffsettoacertainextentbyanincreaseininflationrates,butinthiscase,theassumptionof“stickyprices”preventsthatfromhappening.nB.Problemsfordiscussion,pg.412-4133.a.ThenewKeynesianmodelassumesthatpricesandnominalwagesareslowtorespondtochangesinmarketconditions;andthattechnologyisfixed,anditisshocksinaggregatedemandratherthansupplywhichcausecyclicalfluctuationsinGDP.b.InthenewKeynesianmodel,achangeinMhasrealeffectsontheeconomy.Increasesinthemoneysupplyleadtoincreasesinaggregatedemandwhichtranslateintoincreasesinrealoutput.Imperfectcompetitionamongproducersisnotsufficienttoguaranteethisresult;afterall,firmscouldraisepricesandwagesinresponsetotheincreaseinthemoneysupply,leavingboththerealwagerateandtheratioofeachfirm’spricetotheaveragepriceunchanged.However,theimperfectcompetitionassumptionisnecessaryinthethesensethatitgivesfirmssome“wiggle-room”toraiserealwages.Inthiscase,theadditionaldemandcanbefilledbyanincreaseinemploymentandoutputwithoutimposingeconomiclossesonthefirms.c.Therearetwoexplanationsprovidedinthetext-imperfectcompetitionandmenucosts.nd.Themodelwithstickypricesgeneratesaprocyclicalrealwagerate,whichisconsistentwiththeempiricalevidence.However,itsassumptionthattechnologyisunchangedimpliesthatmorelaboremployedreducesthemarginalandaverageproductoflabor,apredictionwhichisrefutedbytheempiricalevidence.e.Money-supplyshocksarenottheonlysourceofshocksinthemodel:anyunanticipatedchangeindemandcanhaveasimilarimpact.Thiscouldarisefromanunexpectedchangeinconsumerbehavior(areductioninthesavingsrateforexample)orfiscalpolicy(governmentspendingortaxcuts,forexample),andforeigntrade(anincreaseinnetexportsduetotheprosperityofatradingpartner,forexample),andothersources.f.ThenewKeynesianmodelrepresentsanadvanceovertheoldinthesensethatitincorporatesmoremicro-economicfoundationsandisconsistentwithmuchoftheempiricalevidenceofbusinesscycles.Theexceptionisthecountercyclicalpredictionfortheaverageproductoflabor,althoughthetheoryoflaborhoardingmayaccountforthis.Itexplainswhychangesinthemoneysupplycanhaverealeffectsonoutputandemploymentevenwhenthosechangesareanticipated.Thestrengthoftheequilibriumbusinesscyclemodelisitsabilitytoaccountforalltherelationshipsintermsofntechnological,orsupplyside“shocks”inawaythatisconsistentwiththeempiricalevidence.Theproblemwithitisthatitcannotexplainwhychangesinthemoneysupplywouldhaveanyrealeffectsontheeconomy.4.a.Thereductioninaggregatedemandreducesrealoutputandemployment.b.Intheonehandsavingswillincreaserelativetoconsumption,duetothehighersavingsrate.Althoughitistheoreticallypossiblethatsavingscouldfallintheaggregate,thiswouldrequirethatrealGDPfallsbyamultipleoftheoriginalchangeinconsumption.Ifrealwagesandemploymentfall,thenspendingcoulddropfurtherthanoriginallyplanned,leadingtofurtherreductionsinincomeandspending.Theendresultcouldbetheparadoxofthriftdescribedinthechapter.c.Becausetheequilibriumbusinesscyclemodelisbasedonsupplysidefactors,theideathatanincreaseinsavingswouldleadtoareductioninrealoutputdoesn’tapply.Inthiscase,theincreaseinsavingswouldsimplyresultinhigherratesofinvestment.Therefore,thereisnomultiplereductioninspendingandincomeasintheKeynesianmodel.5.Themultiplierisbasedontheassumptionthatinitialchangesindemandreducerealoutputratherthanprices.Thereductioninrealoutputresultsinnlowlevelsofspending,generatingadditionalreductionsinrealoutput,andsoon.5a.Ifthepriceleveladjusts,thenthechangeinnominalspendingwillnothaveasmucheffectonrealoutput;themultiplierisreduced.5b.Themarkupratioprovidesthe“wiggleroom”thatfirmshavetoraiserealwageswithoutcompromisingprofitability.Theless“wiggleroom”firmshave,themorepressuretherewillbetoraiseprices.Thereforethemultiplierwouldincreasewiththesizeofthemarkupratio.5c.Themodelassumesthatpeoplewillattempttoexchangetheirexcessmoneybalancesforgoods.IfthedemandforrealmoneybalancesgrowsalongwithGDP,Y,thenpeoplewillnothaveexcessmoneybalancesandthemultipliereffectisreduced.Inanextremecase,referredtoasa“liquiditytrap”byKeynes,themoneydemandwillgrowtoaccommodateanyincreaseinthemoneysupplied.Inthiscase,hefeltthatmonetarypolicycouldnotbereliedupontogeneratethenecessaryspending.Sincetheequilibriumbusinesscycleistheresultofchangesinthetechnologybehindtheproductionofgoodsandservices,andincludestheassumptionthatpricesareflexibleandmarketsclear,thereisnomultipliereffect.Anyincreaseinnominalspendingwouldbetransmittedtothepricelevel,leavingrealvariablesunaffected.n6.InthenewKeynesianmodel,theincreaseinexpectedwealthwillcausepeopletoincreaseconsumptionandaggregatedemand.Inthestickypricemodel,businesseswillrespondtotheincreaseindemandbyincreasingemploymentandoutput.The“prophecy”ofincreasedwealthisselffulfilling.Intheequilibriumbusinesscyclemodel,therewouldbenoincreaseintheproductivityoflabororcapital,sonochangeinthedemandforresources.Currentconsumptionwouldincreaseandsavingswouldfall.Interestrateswouldbehigherandtheinvestmentlowerthanitwouldotherwisebe.(Thehigherinterestratesmaygenerateapositiveeffectonlaborsupply;althoughthiswouldbelimitedbytheincomeeffect(peoplewouldfeelwealthiersotheywouldincreaseleisure.)AnyincreaseincurrentGDPwouldbelimited,andfutureoutputwouldbesmallerduetothereductionincapital.7.StickywagesgeneratesimilareffectsonGDPasstickyprices,buttheimpactonrealwagesdiffersinthetwomodels.Thestickywagemodelpredictscountercyclicalrealwages.KeynesmighthavebeeninfluencedbythepersistentlyhighunemploymentratesoftheGreatDepression;afterall,thestickywageassumption,unlikethealternatives,doesgenerate“involuntary”unemployment.n