Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Capitolo 11
Prodotto, Occupazione e Prezzi
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Equilibrio generale
©EGEA 2006
Fig. 11.01
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 11.01
Interest rate
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).
IS
Output
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 11.01
Equilibrium in the money market
Interest rate
LM
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
©EGEA 2006
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
General equilibrium
Interest rate
LM
A
IS
Y1
©EGEA 2006
Output
Fig. 11.01
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Output and employment
©EGEA 2006
Fig. 11.02
Real wage
Burda, Wyplosz
w
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
A
Lscollective
Lshousehold
(a) Labour market
d
L
L
Ls
Labour
Output and employment
Output
unemployment
Y = f L 
Y
(b) Goods production
L
©EGEA 2006
Fig. 11.02
Labour
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
General equilibrium
©EGEA 2006
Fig. 11.03
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Real
wage
Lscollective
Interest
rate
IS
S
A Lshousehold
i
Ld
w
A
L
Y = f L 
(c)
Y DD(i )
Y
Y
Employment
(b)
©EGEA 2006
L
Equilibrium
in the
goods market
Output
Output
Output
Employment
(a)
Fig. 11.03
Desired
demand
45°
(d)
Y
Warning: the
axes have been
switched from the
original 45°
diagram!
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Money
market
equilibrium
S
A
i
Fig. 11.03
 
M s
P
Interest
rate
Interest
rate
Burda, Wyplosz
i
 
M d
P Y
LM
Output
(e)
Y
Price
level
(c)
Real
money
M P
M
 
M s
P
P
M
Real
money
(f)
©EGEA 2006
M P
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
IS
S
A Lshousehold
w
A
i
Fig. 11.03
 
M s
P
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
i
 
Ld
M d
P Y
L
Y = f L 
Real
money
Output
(c)
Y DD(i )(e)
Price
level
(a)
LM
Output
Output
Employment
 
M s
P
Y
Y
M P
M
P
M
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
Y
Real
money
(f)
M P
Now….general equilibrium!
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
The role of the price level
©EGEA 2006
Fig. 11.04
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
IS
S
Lshousehold
i
Ld
w
A
Y = f L 
(c)
Y DD(i )(e)
Price
level
L
Real
money
Output
Output
Output
Employment
(a)
Fig. 11.04
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
Y
Y
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
Y
Real
money
(f)
Determining equilibrium Y and i
Real
wage
Lscollective
Lshousehold
w
IS
S
B
C
A
i
L
(c)
Y DD(i )(e)(M
M
P
Y
Y
P)
Price
level
Y = f L 
Real
money
Output
Output
Output
Employment
L
 
M d
P Y
LM
d
(a)
Fig. 11.04
Interest
rate
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Interest
rate
Burda, Wyplosz
M
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
Y
Real
money
(f) (M
P)
What happens, if P is “too” high?
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Lshousehold
w
IS
S
B
C
A
i
L
Y = f L 
(c)
Real
money
Y DD(i )(e)(M
M
P
Y
Y
 
M d
P Y
Price
level
L
i
Output
Output
Output
Employment
(a)
 
LM
LM 
d
Fig. 11.04
M s
P
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
P ) (M P )
 
M s
P
P
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
M
Y
Real
money
(f) (M
P ) (M P )
With low output, P falls...
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
IS
S
Lshousehold
w
A
i
Ld
LM 
LM 
L
Y = f L 
  
i
 
M d
P Y
D
E
(c)
Real
money
Output
Y DD(i )(e)
M
Price
level
(a)
Output
Output
Employment
Fig. 11.04
M s M s
P
P 
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
(M P ) (M P )
  
M s
P
M s
P 
Y
Y
P
P 
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
M
Y
Real
money
(f)
(M P ) (M P )
When P´´ is “too low”...
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Monetary neutrality
©EGEA 2006
Fig. 11.05
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
IS
S
A Lshousehold
w
A
i
Fig. 11.05
 
M s
P
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
i
 
Ld
LM,LM 
Employment
Employment
(b)
©EGEA 2006
L
P
P
P
Y
Y
Output
Price
level
Y = f L 
Real
money
Y DD(i )(e) M P = M  P 
M
M M s
(c)
L
Output
Output
(a)
M d
P Y
Desired
demand
45°
(d)
M
Y
(f)

M
Real
money
M P = M P

Proportional changes in P and M.
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Sticky price equilibrium
©EGEA 2006
Fig. 11.06
Real
wage
Lscollective
S
A Lshousehold
w
Fig. 11.06
Interest
rate
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Interest
rate
Burda, Wyplosz
Ld
L
Y = f L 
(c)
Y
(e)
Price
level
(a)
Real
money
Output
Output
Output
Employment
Y
Y
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
Y
Real
money
(f)
Output for labour market equilibrium
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
A L
S
B
i
L
i
 
M d
P Y
Y = f L 
(c)
Y
Y DD(i ) (e) (M
M
Y
Y
Real
money
Output
Output
Output
Employment
L
 
LM
d
(a)
Fig. 11.06
M s
P
Interest
rate
s
household
w
IS
Price
level
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
P)
 
M s
P
P
M
Employment
(b)
©EGEA 2006
L
Desired
demand
45°
(d)
Y Y
Real
money
(f)
(M P )
P is high, M/P is low and i is high.
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
IS
A Lshousehold i
w
S
L
i
B
 
M d
P Y
(c)
Y
Y DD(i ) (e) (M
M
Price
level
Y = f L 
Y
Y
Y
Y
Real
money
Output
Output
Output
Employment
L
 
LM
d
(a) L
Fig. 11.06
M s
P
Interest
rate
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
P)
 
M s
P
P
M
Employment
(b)
©EGEA 2006
L L
Desired
demand
45°
(d)
Y Y
Real
money
(f)
(M P )
Low Y means low L too.
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
C
B
A Lshousehold i
D
d
S
 
M d
P Y
LM
L
Y = f L 
(c)
Y
Y DD(i ) (e) (M
M
Y
Y
Y
Y
Real
money
Output
Output
Output
L
 
i
B
Employment
(a) L
Fig. 11.06
M s
P
Interest
rate
w
IS
Price
level
Real
wage
Lscollective
Interest
rate
Burda, Wyplosz
P)
 
M s
P
P
M
Employment
(b)
©EGEA 2006
L L
Desired
demand
45°
(d)
Y Y
Real
money
(f)
(M P )
MPL > w between C and D, e.g. B
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Monetary neutrality fails
when the price level is fixed
©EGEA 2006
Fig. 11.07
Burda, Wyplosz
MACROECONOMIA: UNA PROSPETTIVA EUROPEA
Fig. 11.07
Monetary neutrality fails if the price level is fixed
LM
Interest rate
IS
i1
i1
A
A´
Y1 Y1
©EGEA 2006
LM´
M/P will change
with a change
in M since P by
assumption is
fixed!
Output