Part 7, The Economy in the Short Run: Part 7, The Economy in the Short Run Redwood City, California, Bay Area The world’s best climate Average annual temperature and rainfall are similar to that of many other U.S. cities, why boasters make the claim? Short term fluctuation is the key economic variable Analogous idea applies to the performance of the economy


Slide2: Short-Term Economic Fluctuations: An Introduction 短期經濟波動-介紹


課程大綱: 課程大綱 Fluctuation Recession, expansion, unemployment Potential output Output gap Okun’s law


封面故事Short-term Economic Fluctuation: 封面故事 Short-term Economic Fluctuation 1991年, 美國與盟軍在灣區戰爭Gulf War獲勝,布希總統的聲望達於頂峰, 90%共和黨人願意投票給布希 外交勝利:1989年巴拿馬強人Noreiga下台;1991年蘇聯垮台,象徵冷戰的結束 1992年布希與奎爾競選失利,敗給柯林頓與高爾,104million選票只得39million,獨立候選人Perot都有20million票.


Weakness in economy played a decisive role in election: Weakness in economy played a decisive role in election Rooservelt beat Hoover in 1932 Kennedy to best Nixon in 1960 Reagan to defeat Carter in 1980 對於未來總統選舉的啟示?


Long Run vs. Short Run長期 vs. 短期: Long Run vs. Short Run長期 vs. 短期 The economic “climate” 經濟氣候 Long-run economic conditions are the ultimate determinant of living standards 長期的經濟氣候(大陸型,地中海型) 長期的經濟發展程度,生活水準 Changes in the economic “weather” Short-run fluctuations are important to our day-to-day existence 短期天氣變化(晴天雨天),每天不同


Recessions衰退: Recessions衰退 Recession [or Contraction]衰退或緊縮 A period in which the economy is growing at a rate significantly below normal成長率低於正常 A period during which real GDP falls for at least 6 consecutive months連續六個月負成長 Recent recessions have lasted between 6 and 16 months Depression蕭條 A particularly severe or protracted recession 嚴重的衰退情形


Recessions: Recessions Duration延續長度 Length of recessions Peak高峰 The beginning of a recession The high point of economic activity prior to a downturn即將進入衰退 Trough低谷 The end of a recession The low point of economic activity prior to a recovery即將復甦


Fig. 12.1 Fluctuations in U.S. Real GDP,1920-1999, p639: Fig. 12.1 Fluctuations in U.S. Real GDP, 1920-1999, p639


Peak and trough: Peak and trough Table 24.1, p640


Expansions擴張: Expansions擴張 Expansion成長速度高於正常速率 A period in which the economy is growing at a rate significantly above normal Normally lasts longer than recessions通常比衰退的期間長 Boom景氣繁榮 A particularly strong and protracted expansion 頁639, 頁641, 漫畫


Cyclical?循環: Cyclical?循環 Cyclical fluctuations循環波動 Business cycles景氣循環 Might imply that economic fluctuations are regular經濟波動是正常現象 However, economic fluctuations are quite irregular in their length and severity 但是通常波動的長度與幅度都異常


Fig. 12.2 U.S. Inflation, 1960-1999, Recession in Blue: Fig. 12.2 U.S. Inflation, 1960-1999, Recession in Blue


Slide14: Unemployment among construction workers rises substantially during recession, p642, photo Measuring fluctuations: Output Gaps and Cyclical Unemployment


Characteristics of SR Fluctuations短期波動的特性: Characteristics of SR Fluctuations 短期波動的特性 Expansions and recessions are擴張與衰退通常是全面性的 Felt throughout the economy and often globally整個經濟體,甚至全球都感受到 Felt not just in a few industries The unemployment rate 失業率 Typically rises sharply during recessions Rises because of cyclical unemployment 循環性失業增加


Characteristics of SR Fluctuations短期波動的特性: Characteristics of SR Fluctuations 短期波動的特性 Recessions衰退 Tend to be preceded by inflation物價膨脹領先 Tend to bring lower inflation rates物價上漲趨緩 Durable goods耐久財貨 Cars, houses, capital equipment Sensitive to fluctuations對景氣波動很敏感 Services and nondurables服務與非耐久財貨 Food Much less sensitive to fluctuations比較不受波動影響(飲食小吃店不受景氣影響)


Potential Output可能產出: Potential Output可能產出 Potential output or Potential real GDP Full employment output充分就業產出 The amount of output (real GDP) that an economy can produce when using its resources, such as capital and labor, at normal rates 經濟體的資本與勞動全部加入生產時 Grows over time長期是成長的 Y*


Causes of Recession衰退的成因: Causes of Recession衰退的成因 A recession occurs when the economy is growing significantly below its normal rate 在正常的成長率之下,謂之衰退 Two possibilities兩個可能 Actual output equals potential output, but potential output is growing slowly成長緩慢 Appropriate policy responses include long-run solutions (Part VI)需要長期的政策 Promote saving, investment, technological innovation, human capital formation鼓勵儲蓄,投資,科技發明,資本形成 Actual output does not always equal potential output (i.e., a recessionary gap)衰退缺口,產出不等於可能產出


Output Gaps產出缺口: Output Gaps產出缺口 Output gap (Y* - Y),可能產出減實際產出 The difference between the economy’s potential output and its actual output at a given point in time Y is actual real GDP,實際的實質GDP Y* is potential real GDP,可能產出的實質GDP


Gaps缺口: Gaps缺口 Recessionary gap (Y* > Y)衰退缺口 A positive output gap, which occurs when potential output exceeds actual output A condition when an economy’s capital and labor resources may not be fully utilized產出不足 Expansionary gap (Y* < Y)膨脹缺口 A negative output gap, which occurs when actual output is higher than potential output A condition when an economy’s resources are being over-utilized過度使用資源,產出過度


Economic Naturalist, 24.1, p644: Economic Naturalist, 24.1, p644 The Japanese slump of the 1990s Japan’s GDP annual growth rate is 10.2% in 1960s 4.6% in 1970s 3.8% in 1980 1.5% in 1990 Less than 1% since 1992 Figure 24.3 next page


Fig. 12.3Actual and Potential Output in Japan, 1980-2000: Fig. 12.3 Actual and Potential Output in Japan, 1980-2000


Unemployment and Gaps失業與缺口: Unemployment and Gaps失業與缺口 During a recessionary gap衰退缺口時 Low utilization of resources occurs A high unemployment rate causes output to fall below potential 衰退缺口時,高失業率,產出低於可能產出水準 During an expansionary gap膨脹缺口 Over utilization of resources occurs Low unemployment rate低失業率 Hence, output is higher than potential 產出高於可能產出水準


Types of Unemployment失業種類: Types of Unemployment失業種類 Frictional摩擦性 Short-term matching of workers and jobs Always present Structural結構性 Long-term chronic—mismatch of skills of workers and skills required for jobs Always present Cyclical循環性 Extra unemployment during periods of recession Only present during recessions衰退時才發生


Natural Rate of Unemployment自然失業率: Natural Rate of Unemployment 自然失業率 Natural rate of unemployment [u*] The part of the total unemployment rate that is attributable to frictional and structural unemployment只有前兩種失業 The unemployment rate that prevails when cyclical unemployment equals zero 循環性失業=0 The unemployment rate that exists when an economy has neither an expansionary gap nor a recessionary gap沒有膨脹缺口或緊縮缺口


Cyclical Unemployment循環性失業: Cyclical Unemployment循環性失業 Cyclical unemployment: u - u*(依定義) Actual unemployment rate: u Natural rate of unemployment: u* Recession衰退 u – u* is positive (u > u*) Positive cyclical unemployment Expansion擴張 u – u* is negative (u < u*) Negative cyclical unemployment: Labor is being used more intensively than normal


Economic Naturalist, 24.2 p464: Economic Naturalist, 24.2 p464 Why is the natural rate of unemployment so low in the US today? 1979, 6.3% 2000, 4% The reason? Reduced frictional and structural unemployment 人口結構的改變(戰後嬰兒潮,中年勞工的工作穩定),職業媒合的技術增進


Okun’s Law歐肯法則: Okun’s Law歐肯法則 Okun’s Law Each extra percentage point of cyclical unemployment is associated with about a 2 percentage point increase in the output gap 1%循環性失業增加,帶來2%的產出缺口 Measured in relation to potential output 衡量可能產出


Okun’s Law and output gap in US: Okun’s Law and output gap in US Example 24.1 Year U U* Y* 1982 9.7% 6.1% 4,957 1991 6.8% 5.9% 6,286 1998 4.5% 5.6% 7,561 In 1982, (9.7-6.1)*2=7.2% 7.2%*4,957=357 billion = output gap


Significant Costs產出缺口與失業的成本: Significant Costs產出缺口與失業的成本 Output gaps and cyclical unemployment have significant costs 循環性失業成本很大 1982 recessionary gap = $357 billion, in 1992 dollars 1982 U.S. population = 230 million Hence, the output loss was around $1,550 per person or about $6,000 per family


Cause and Cure for Output Gaps產出缺口的成因與調整, p649: Cause and Cure for Output Gaps 產出缺口的成因與調整, p649 1. Some prices adjust slowly價格調整緩慢 Firms “meet the demand” at a preset price in the short run 2. Economy-wide spending changes政府支出改變 Major cause of output gaps 3. Firms change prices廠商改變價格 Raise prices in response to expansionary gaps Lower prices in response to recessionary gaps 4. Economy self-corrects 經濟體自我調整 Tends to eliminate output gaps in the long run


Economic naturalist, 24.3 p651: Economic naturalist, 24.3 p651 Why did the Coca-Cola company test a vending machine that “knows” when the weather is hot? Weather-sensitive vending machine Others suggest programming the machine to change price according to off-peak hour or low-traffic Technology may change pricing practices in the future