Abel & Bernanke Ch. 8, Key Macroeconomic Theories of the Business Cycle

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 2 Figure 1.1 Output of the U.S. economy, 1869–2002

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 3 Figure 1.2 Average labor productivity in the United States, 1900–2002

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 4 Figure 1.3 The U.S. unemployment rate, 1890–2002

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 5 Figure 1.4 Consumer prices in the United States

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 6 Figure 1.5 U.S. exports and imports, 1869–2002

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 7 Figure 1.6 U.S. Federal government spending and tax collections, 1869–2002

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 8 Figure 8.1 Business cycles (Ch. 8)

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 9 Figure 8.2 Index of industrial production, January 2000–April 2003

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 10 Figure 8.3 Total nonfarm employment, January 2000–April 2003

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Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 12 Figure 8.5 Cyclical behavior of consumption and investment Total Output = Y = C + I + G + NX

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 13 Figure 8.12 The aggregate demand– aggregate supply model

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 14 Figure 8.13 An adverse aggregate demand shock

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 15 Figure 8.14 An adverse aggregate supply shock

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 16 Neoclassical / Real Business Cycles (Ch. 10): Figure 10.3 Small shocks and large cycles

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 17 Figure 10.4 Effects of a temporary increase in government purchases

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 18 Figure 10.6 The aggregate supply curve in the misperceptions theory

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 19 Figure 10.7 An unanticipated increase in the money supply

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 20 Figure 10.8 An anticipated increase in the money supply

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 21 Key Diagram 8 The misperceptions version of the AD–AS model

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 22 Keynesianism (Ch. 11): Figure 11.1 Determination of the efficiency wage

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 23 Figure 11.2 Excess supply of labor in the efficiency wage model

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 24 Table 11.1 Average Times Between Price Changes for Various Industries

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 25 Figure 11.3 The effective labor demand curve

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 26 Figure 11.4 An increase in the money supply

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 27 Figure 11.4 An increase in the money supply (cont’d)

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 28 Figure 11.5 An increase in government purchases

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 29 Figure 11.5 An increase in government purchases (cont’d)

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 30 Figure 11.6 An increase in government purchases in the Keynesian AD–AS framework

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 31 Figure 11.7 A recession arising from an aggregate demand shock

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 32 Figure 11.8 Stabilization policy in the Keynesian model

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 33 Figure 11.9 An oil price shock in the Keynesian model

Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 34 Key Elements of Monetary and Fiscal Policies Monetary Policy is controlled by the Federal Reserve which has two, competing goals: –Stimulate healthy economic growth, and –Control inflation at a manageable level. Fiscal Policy is controlled by the Federal Government which has three key tools: –Discretionary government spending, –Ability to enact new taxes (to increase Govt. Revenue), and –Automatic Stabilizers (e.g., income taxes, unemployment benefits).