1、Macroeconomics Chapter 8 1Cyclical Behavior of Real GDPRecessions and BoomsReal GDP = trend real GDP + cyclical part of real GDPCyclical part of real GDP Coming from the business cycle Short-term economic fluctuations.Macroeconomics Chapter 8 1CyclMacroeconomics Chapter 8 2Cyclical Behavior of Real

2、GDPRecessions and BoomsMacroeconomics Chapter 8 2CyclMacroeconomics Chapter 8 3Cyclical Behavior of Real GDPRecessions and BoomsMacroeconomics Chapter 8 3CyclMacroeconomics Chapter 8 4Cyclical Behavior of Real GDPRecessions and BoomsMacroeconomics Chapter 8 4CyclMacroeconomics Chapter 8 5An Equilibr

3、ium Business-Cycle ModelMacroeconomics Chapter 8 5An EMacroeconomics Chapter 8 6An Equilibrium Business-Cycle ModelConceptual IssuesAssuming that these fluctuations reflect shocks to the economy.Change in level of technologyY= A F( K, L)An increase in A means that the economy is more productive.A de

4、crease in A means that the economy is less productive.Macroeconomics Chapter 8 6An EMacroeconomics Chapter 8 7An Equilibrium Business-Cycle ModelUses equilibrium conditions to determine how the shocks affect real GDP, Y, and other macroeconomic variables, such as consumption, C, investment, I, and t

5、he quantity of labor input, L.RBC model Finn Kydland & Edward Prescott （2004 Nobel Laureates） Macroeconomics Chapter 8 7An EMacroeconomics Chapter 8 8An Equilibrium Business-Cycle ModelThe ModelY= A F( K, L)the capital stock, K, as fixed in the short run,the labor input, L, is fixed. Changes in Y wi

6、ll reflect only changes in A.When A rises, Y rises,When A falls, Y falls.Macroeconomics Chapter 8 8An EMacroeconomics Chapter 8 9An Equilibrium Business-Cycle ModelThe ModelThe marginal product of labor and the real wage rateAn increase in the technology level, A, raises the marginal product of labo

7、r, MPL, for given inputs of capital, K, and labor, L.Macroeconomics Chapter 8 9An EMacroeconomics Chapter 8 10An Equilibrium Business-Cycle ModelMacroeconomics Chapter 8 10An Macroeconomics Chapter 8 11An Equilibrium Business-Cycle ModelMacroeconomics Chapter 8 11An Macroeconomics Chapter 8 12An Equ

8、ilibrium Business-Cycle ModelThe ModelMarginal product of capital, real rental price, and the interest rateAn increase in the technology level, A, raises the marginal product of capital, MPK, for given inputs of capital, K, and labor, LMacroeconomics Chapter 8 12An Macroeconomics Chapter 8 13An Equi

9、librium Business-Cycle ModelMacroeconomics Chapter 8 13An Macroeconomics Chapter 8 14An Equilibrium Business-Cycle ModelMacroeconomics Chapter 8 14An Macroeconomics Chapter 8 15An Equilibrium Business-Cycle ModelMarginal product of capital, real rental price, and the interest ratei = R/P i = MPK(eva

10、luated at given K and L) The model predicts that an economic boom will have a relatively high interest rate, whereas a recession will have a relatively low interest rate.Macroeconomics Chapter 8 15An Macroeconomics Chapter 8 16An Equilibrium Business-Cycle ModelConsumption, saving, and investmentAgg

11、regate household budget constraint Given the markets for bonds, labor, and capital services clear:C + K = Y KMacroeconomics Chapter 8 16An Macroeconomics Chapter 8 17An Equilibrium Business-Cycle ModelC+ K = A F( K, L) Kdepreciation, K, is fixed in the short run,An increase in A raises real GDP for

12、given K and L, we see that a rise in A raises overall real income.Macroeconomics Chapter 8 17An Macroeconomics Chapter 8 18An Equilibrium Business-Cycle ModelConsumption, saving, and investmentincome effect： The increase in real income motivates households to raise current consumption and future con

13、sumption.Intertemporal-substitution effect： The increase in the interest rate tends to reduce current consumption.The net change depends on whether the income effect is stronger or weaker than the intertemporal-substitution effect.Macroeconomics Chapter 8 18An Macroeconomics Chapter 8 19An Equilibri

14、um Business-Cycle ModelConsumption, saving, and investmentAssume that the change in A is permanent.the increases in real income tend also to be permanent.The propensity to consume out of higher income would be close to one.When the increase in A is permanent, current consumption will rise. However,

15、as long as the intertemporal-substitution operates at all, the increase in current consumption will be less than the increase in real GDP.Macroeconomics Chapter 8 19An Macroeconomics Chapter 8 20An Equilibrium Business-Cycle ModelConsumption, saving, and investmentSince current consumption, C, rises

16、, but by less than the increase in real GDP, Y. Therefore, net investment, K, must increase - the increase in real GDP shows up partly as more C and partly as more K. Since net investment, K, equals real saving, this result is consistent with our finding that real saving increased.Macroeconomics Cha

17、pter 8 20An Macroeconomics Chapter 8 21Matching the Theory with the FactsConsumption and InvestmentWhen a variable fluctuates in the same direction as real GDP that variable is procyclical.A procyclical variable moves in the same direction as the business cycleit tends to be high relative to its tre

18、nd in a boom and low relative to its trend in a recession.Macroeconomics Chapter 8 21MatMacroeconomics Chapter 8 22Matching the Theory with the FactsConsumption and InvestmentA variable that fluctuates in the opposite direction from real GDP is countercyclical. One that has little tendency to move i

19、n a particular direction during a business cycle is acyclical.Macroeconomics Chapter 8 22MatMacroeconomics Chapter 8 23Matching the Theory with the FactsMacroeconomics Chapter 8 23MatMacroeconomics Chapter 8 24Matching the Theory with the FactsMacroeconomics Chapter 8 24MatMacroeconomics Chapter 8 2

20、5Matching the Theory with the FactsConsumption and InvestmentPermanent shifts in the technology level, A, match up with some of the empirical patterns Increases in A generate economic booms, where real GDP increases, consumption and investment increases.Decreases in A create recessions, where real G

21、DP, consumption, and investment all decline.Macroeconomics Chapter 8 25MatMacroeconomics Chapter 8 26Matching the Theory with the FactsThe Real Wage RateThe model predicts that the real wage rate, w/P, will be relatively high in booms and relatively low in recessions.Macroeconomics Chapter 8 26MatMa

22、croeconomics Chapter 8 27Matching the Theory with the FactsMacroeconomics Chapter 8 27MatMacroeconomics Chapter 8 28Matching the Theory with the FactsThe Real Rental PriceThe model predicts that the real rental price of capital, R/P, will be relatively high in booms and relatively low in recessions.

23、Macroeconomics Chapter 8 28MatMacroeconomics Chapter 8 29Matching the Theory with the FactsMacroeconomics Chapter 8 29MatMacroeconomics Chapter 8 30Matching the Theory with the FactsThe Interest RateThe model predicts that booms will have a high interest rate, i, whereas recessions will have a low i

24、nterest rate.Macroeconomics Chapter 8 30MatMacroeconomics Chapter 8 31Temporary Changes in the Technology LevelA decrease in A due to a harvest failure or a general strike would be temporary. To allow for these cases, we now assume that the change in A is temporary.Macroeconomics Chapter 8 31TemMacr

25、oeconomics Chapter 8 32Temporary Changes in the Technology LevelIf A increases temporarily, real GDP, A F (K, L), still rises for fixed values of K and L.The marginal product of capital, MPK, and the interest rate, i, also rise as before. The intertemporal-substitution effect from the higher i still

26、 motivates households to reduce current consumption, C, and raise current real saving.Macroeconomics Chapter 8 32TemMacroeconomics Chapter 8 33Temporary Changes in the Technology LevelThe model therefore predicts that economic boom would feature high real GDP and investment. Consumption would rise b

27、y a small amount.A recession would have low real GDP and investment. Consumption would decline by a modest amount.Macroeconomics Chapter 8 33TemMacroeconomics Chapter 8 34Variations in Labor InputLabor SupplyMore labor supplied means less leisure time for the family.Assume that households also like

28、more leisure time.As with consumption and saving, the choice of Ls involves substitution and income effects. Macroeconomics Chapter 8 34VarMacroeconomics Chapter 8 35Variations in Labor InputThe substitution effect for leisure and consumptionIf the household chooses to work one more hour and thereby

29、 have one less hour of leisure, the extra w/P of real wage income pays for w/P more units of consumption. Therefore, the household can substitute one less hour of leisure for w/P more units of consumption.Macroeconomics Chapter 8 35VarMacroeconomics Chapter 8 36Variations in Labor InputThe substitut

30、ion effect for leisure and consumptionIf w/P rises, the household gets a better deal by working more because it gets more consumption for each extra hour worked. Since the deal is better, we predict that the household responds to a higher w/P by working more.Macroeconomics Chapter 8 36VarMacroeconom

31、ics Chapter 8 37Variations in Labor InputThe substitution effect for leisure and consumptionA higher real wage rate, w/P, raises the quantity of labor supplied, LsMacroeconomics Chapter 8 37VarMacroeconomics Chapter 8 38Variations in Labor InputIncome effects on labor supplyA higher w/P means higher

32、 real wage income, (w/P) Ls Household spends the extra income on consumption and leisure time.A higher w/P leads to a smaller quantity of labor supplied, Ls.Macroeconomics Chapter 8 38VarMacroeconomics Chapter 8 39Variations in Labor InputIncome effects on labor supplyResolve the ambiguity by consid

33、ering whether the income effect is strong or weakC1 + C2/(1+i1) + C3/( 1+i1)(1+i2) + = (1 + i0)(B0/P+K0) + (w/P)1Ls1+(w/P)2Ls2/(1+i1) + (w/P)3Ls3 /(1+i1)(1+i2)+ Macroeconomics Chapter 8 39VarMacroeconomics Chapter 8 40Variations in Labor InputIncome effects on labor supplyA permanent increase in rea

34、l wage rates results in a large income effect.If the change in year 1s real wage rate, (w/P)1, is temporary, the income effect is small.The income effect will be weaker than the substitution effect.Macroeconomics Chapter 8 40VarMacroeconomics Chapter 8 41Variations in Labor InputIntertemporal-substi

35、tution effects on labor supplyC1 + C2/(1+i1) + C3/( 1+i1)(1+i2) + = ( 1 + i0)(B0/P+K0) + (w/P)1Ls1+(w/P)2Ls2/(1+i1) + (w/P)3Ls3 /(1+i1)(1+i2) + Macroeconomics Chapter 8 41VarMacroeconomics Chapter 8 42Variations in Labor InputIntertemporal-substitution effects on labor supply.If the interest rate, i

36、1, rises, a unit of year2s real wage income, (w/P)2Ls2, becomes less valuable as a present value compared to a unit of year1s real wage income, (w/P)1Ls 1. We therefore predict that the household would increase Ls1 and decrease Ls2 as the interest rate increases.Macroeconomics Chapter 8 42VarMacroec

37、onomics Chapter 8 43Variations in Labor InputMacroeconomics Chapter 8 43VarMacroeconomics Chapter 8 44Variations in Labor InputFluctuations in Labor InputMeasures of labor input are procyclical: they move in the same direction as real GDP during booms and recessions.EmploymentTotal hours workedMacroeconomics Chapter 8 44VarMacroeconomics Ch