[Unit 16] Business Cycle

Graph

（书 P299）横轴是 Time，纵轴是 Level of National Business Activity（or Real GDP）。

Peak -> Contraction (Recession) -> Trough -> Expansion (Recovery)

在上方的叫 Inflationary Gap (Positive Output Gap)，在下方的叫 Recessionary Gap (Negative Output Gap)，在 Trend 线上的叫 Full Employment。

[Unit 16] AD-AS Model

横轴是 Real GDP，纵轴是 Price Level。

Aggregate Demand

(PPT 16.1)

• Definition: all the goods and services (real GDP) that buyers are willing and able to purchase at different price levels.
• Why downward sloping ($PL$ and $R.GDP$ are inversely related)
  • The Wealth Effect (aka Real Balance Effect)
    • Higher price levels reduce the purchasing power of money.
  • Interest Rate Effect
    • Price levels increases, Lenders need to charge higher Interest Rate to get REAL return on their loans. Higher interest rates discourage consumer spending and business investment.
  • Foreign Trade Effect
    • When U.S. price level rises, foreign buyers purchase fewer U.S. goods and Americans buy more foreign goods. Exports fall and imports rise causing real GDP demanded to fall.
• Shifters
  • C I G X
• Demand Shock: AD 突然移动
  • e.g. Demand for masks during COVID

AS

(PPT 16.2)

• Definition: all firms and producers within an economy that are willing and able to supply goods and services at different price levels.
• Including:
  • Firms and Businesses (Primary, Secondary, Tertiary) (producers & service providers)
  • Government Entities
  • Foreign Producers

Long Run AS (LRAS)

• 根据笔记 Unit 14-15 杂项 中的 The Theory of Monetary Neutrality 可知，$LRAS$ 是一条竖直的线。横坐标是 Full Employment 时生产的 Real GDP。
• The shifters of the LRAS are the same the shifters of the PPC.
  • Resource
  • Tech
  • Policy (only for macroeconomics)

Short Run AS (SRAS)

• Why upward sloping
  • When PL goes up, businesses have an incentive to produce more in the short-run.
  • Wages and Resource prices (Capital) are sticky and WILL NOT change as price levels change (Minimum).
  • Firms having relatively little flexibility to vary their inputs.
• Shifters
  • Resource Prices
    • Prices of Domestic and Imported Resources
    • Supply Shocks
      • Positive / Negative Supply Shock: SRAS 突然移动
    • Inflationary Expectations
  • Government Actions
    • Taxes on Producers / Subsidies for Producers
    • Government Regulations
  • Productivity
    • Tech
  • Exchange Rate

Model

• 当 Equilibrium 出现在 LRAS 右侧时，对应 Inflationary Gap，反之对应 Recessionary Gap。
  • 同理，出现在 LRAS 上时对应 Full Employment。
• Inflationary Gap - PPC 外；Recessionary Gap - PPC 内；Full Employment - PPC 上
  • PPC 外？还有一个 PPC 叫 Unsustainable Capacity，意味着 0% Unemployment。（PPT 16.3 Slide 2）
    • 就是说正常的 PPC 是 long run 下的，这个是 short run 下的 maximum，是过度使用资源或牺牲长期生产能力的产出。

Long-Run Adjustment（[Unit 18]）

• Recession：失业率高，工人愿意接受更低工资，企业成本下降，SRAS 曲线右移，恢复。

  • To attain long-run equilibrium, wages and other resource prices must fall. This could very well occur since unemployed workers and idle resources put downward pressure on wages and other production costs during recessions.

• Inflation：失业率低，工人要求更高工资，企业成本上升，SRAS 曲线左移，冷却。

  • Workers and resource owners demand higher wages and prices, and this induces firms to let workers go and production falls, shifting SRAS to the left.