capitolo 11

©EGEA 2006

Burda, Wyplosz MACROECONOMIA: UNA PROSPETTIVA EUROPEA

Capitolo 11

Prodotto, Occupazione e Prezzi

©EGEA 2006


Equilibrio generale

Fig. 11.01

©EGEA 2006


Output

Inte

rest

rat

e

IS

Equilibrium in the goods market

Changes in output will occur when we are not on the IS curve (as response to shortage to the left of IS and surplus to the right).

Fig. 11.01

©EGEA 2006


Inte

rest

rat

e

LM

Equilibrium in the money market

Changes in the interest rate will occur when we are not on the LM curve. Below LM there is an excess demand for money (bonds chase money). Above the LM there is an excess supply of money (money chases bonds).

Output

Fig. 11.01

©EGEA 2006


Inte

rest

rat

eGeneral equilibrium

LM

IS

A

OutputY1

Fig. 11.01

©EGEA 2006


Output and employment

Fig. 11.02

©EGEA 2006


unemployment

sL

Out

put

Labour

Rea

l wag

e

Labour

sLcollective

(b) Goods production

sLhousehold

dL

Output and employment

(a) Labour market

w

L

L

Y = f L

A

Y

Fig. 11.02

©EGEA 2006


General equilibrium

Fig. 11.03

©EGEA 2006


IS

Y

Y

S

Out

put

Desired demand

Inte

rest

rate

Output

45°

(c)

(d)

Employ-ment

Employ-ment

dL

Rea

lw

age sLcollective

sLhousehold

Out

put

Y = f L

Aw

L

L

Y

(b)

(a)

Equilibriumin the

goods market

Warning: the axes have been switched from the original 45° diagram!

( )DD i

Ai

Y

Fig. 11.03

©EGEA 2006


M

MM P

M P

sMP

sMP

dMP Y

Realmoney

Inte

rest

rate

(e)

Pric

ele

vel

Realmoney

(f)

P

Money market

equilibrium LM

Y

S

Inte

rest

rate

Output

(c)

iAi

Fig. 11.03

©EGEA 2006


( )DD i

Y

M

M

dL

sLcollective

sLhousehold

Y = f L

IS

LM

M P

sMP

M P

sMP

dMP Y

Y

Y

S

Realmoney

Inte

rest

rate

(e)

Pric

ele

vel

Realmoney

(f)

Rea

lw

age

Employ-ment

(a)

Out

put

Employ-ment

(b)45°

Out

put

Desired demand

(d)

Inte

rest

rate

Output

(c)

P

Ai i

Now….general equilibrium!

w

L

L

Y

A

Fig. 11.03

©EGEA 2006


The role of the price level

Fig. 11.04

©EGEA 2006


( )DD i

dL

sLcollective

sLhousehold

Y = f L

IS

Y

S

Y

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

(e)

(f)

Rea

lw

age

Employ-ment

Out

put

Employ-ment

(b)

(a)

45°

Out

put

Desired demand

Inte

rest

rate

Output

(c)

(d)

Determining equilibrium Y and i

Y Y

Aiw

L

L

Fig. 11.04

©EGEA 2006


( )DD i

M

M

dL

sLcollective

sLhousehold

Y = f L

IS

dMP Y

Y

S

Y

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

(e)

(f)

Rea

lw

age

Employ-ment

Out

put

Employ-ment

(b)

(a)

45°

Out

put

Desired demand

Inte

rest

rate

Output

(c)

(d)

LM

B

What happens, if P is “too” high?

M P( )

M P( )

C

Y Y

w

L

L

P

Ai

Fig. 11.04

©EGEA 2006


45°

Out

put

Desired demand

Inte

rest

rate

Output

(c)

(d)

( )DD i

LM

i

M

M

dL

sLcollective

sLhousehold

Y = f L

IS

dMP Y

Y

S

Y

i

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

(e)

(f)

Rea

lw

age

Employ-ment

Out

put

Employ-ment

(b)

(a)

w

L

L

LM

B

M P( )

M P( )

M P( )

sMP

sMP

M P( )

P

With low output, P falls...

C

P

A

Fig. 11.04

Y Y

©EGEA 2006


IS

LM

Y

S

Y

45°

Out

put

Desired demand

Inte

rest

rate

Output

(c)

(d)

( )DD i

Ai

Y Y

M

M

dL

sLcollective

sLhousehold

Y = f L

dMP Y

i

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

(e)

(f)

Rea

lw

age

Employ-ment

Out

put

Employ-ment

(b)

(a)

w

L

L

LM

D

sMP

sMP

M P( )

When P´´ is “too low”...

E

M P( )

sMP

sMP

M P( )M P( )

P

Fig. 11.04

P

©EGEA 2006


Monetary neutrality

Fig. 11.05

©EGEA 2006


M

M

( )DD i

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

M

M

dL

Rea

lw

age

Employ-ment

sLcollective

sLhousehold

Out

put

Employ-ment

Y = f L

Out

put

Desired demand

Inte

rest

rate

Output

45°

IS

LM

P

Aw

L

L

M P

M P

sMP

sMP

dMP Y

Y Y

Y

Y

S

i i

(c) (e)

(b) (d) (f)

(a)

P

Proportional changes in P and M.

,LM

= M P

= M P

A

Fig. 11.05

©EGEA 2006


dL

sLcollective

sLhousehold

Y = f L

Y

Y

S

Realmoney

Inte

rest

rate

(e)

Pric

ele

vel

Realmoney

(f)

Rea

lw

age

Employ-ment

(a)

Out

put

Employ-ment

(b)

Out

put

Desired demand45°

(d)

Inte

rest

rate

Output

(c)

Y Y

Output for labour market equilibrium

w

L

L

Fig. 11.06

A

©EGEA 2006


M P( )

sMP

sMP

M P( )

dMP Y

Y = f L

L

L

i i

( )DD i

M

M

dL

sLcollective

sLhousehold

IS

w

Y

Y

S

Realmoney

Inte

rest

rate

(e)

Pric

ele

vel

Realmoney

(f)

Rea

lw

age

Employ-ment

(a)

Out

put

Employ-ment

(b)

Out

put

Desired demand45°

(d)

Inte

rest

rate

Output

(c)

Y Y

LM

P

P is high, M/P is low and i is high.

A

Y

Y

B

Fig. 11.06

©EGEA 2006


( )DD i

L

L

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

M

M

dL

Rea

lw

age

Employ-ment

sLcollective

sLhousehold

Out

put

Employ-ment

Y = f L Out

put

Desired demand

Inte

rest

rate

Output

45°

IS

w

L

L

M P( )

sMP

sMP

dMP Y

Y Y

Y

Y

S

(c) (e)

(b) (d) (f)

(a)

LM

B

M P( )

P

Low Y means low L too.

A

Y

Y

ii

Y Y

Fig. 11.06

©EGEA 2006


( )DD i

L

L

Realmoney

Inte

rest

rate

Pric

ele

vel

Realmoney

M

M

dL

Rea

lw

age

Employ-ment

sLcollective

sLhousehold

Out

put

Employ-ment

Y = f L Out

put

Desired demand

Inte

rest

rate

Output

45°

IS

w

L

L

M P( )

sMP

sMP

dMP Y

Y Y

Y

Y

S

(c) (e)

(b) (d) (f)

(a)

LM

B

M P( )

P

MPL > w between C and D, e.g. B

CB

D

A

Y

Y

ii

Y Y

Fig. 11.06

©EGEA 2006


LMIS

1i

1Y

Monetary neutrality fails if the price level is fixed

LM´

1Y

1i A´

M/P will change with a changein M since P by assumption is fixed!

Inte

rest

rat

e

Output

Fig. 11.07

A

capitolo 11

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