20121222 mankiw economics chapter36

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20121222 mankiw economics chapter36

  1. 1. Principles of Economics Chap36   Six  debates     over  Macroeconomic  Policy
  2. 2. What we have learned 
 in macroeconomics 2   Chap 25 Chap 26 Chap 27 Chap 28 Chap 29 Chap 30 The level and growth of productivity and real GDP How the financial system works and How the real interest rate adjusts to balance saving and investment Why there is always some unemployment in the economy The monetary system and how changes in the money supply affect the price level,the inflation rate, and the nominal interest rate Chap 31 Chap 32 Extension of this analysis to open economies to explain the trade balance and the exchange rate. GDP Financial system Unemployment Monetary system Open Economy Chapter Key words Contents Chap 33 .Discussing some of the important facts about short run fluctuations in economic activity and introducing a basic model to explain those fluctuations. Aggregate demand and aggregate supply Chap 34 ・How monetary policy influences aggregate demand.   ・How fiscal policy influences aggregate demand Aggregate demand and aggregate supply Chap 35 ・rela>onship  between  infla>on  and  unemployment The  short-­‐run  trade  off     Between  Infla>on  and     Unemployment
  3. 3. Proposi>on   (and  percentage  of  economists  who  agree) 1.  A  ceiling  on  rents  reduces  the  quan>ty  and  quality  of  housing  available.(93%)   2.  Tariffs  and  important  quotas  usually  reduce  general  economic  welfare.(93%)   3.  Flexible  and  floa>ng  exchange  rates  offer  an  effec>ve  interna>onal  monetary   arrangement.(90%)   4.  Fiscal  policy(e.g.,  tax  cut  and/or  government  expenditure  increase)  has  a  significant   s>mula>ve  impact  on  a  less  than  fully  employed  economy.   5.  The  United  States  should  not  restrict  employers  from  outsourcing  work  to  foreign   countries.(90%)   6.  Economic  growing  in  developed  countries  like  that  United  States  leads  to  greater  levels   of  well-­‐being.(88%)   7.  The  United  States  should  eliminate  agricultural  subsidies.(85%)   8.  An  appropriately  designed  fiscal  policy  can  increase  the  long-­‐run  rate  of  capital   forma>on.(85%)   9.  Local  and  state  governments  should  eliminate  subsidies  to  professional  sports   franchises.(85%)   10. If  the  federal  budget  is  to  balanced,  it  should  be  done  over  the  business  cycle  rather   than  yearly.(88%)  
  4. 4. Ten Principles of Economics Ⅰ.How People Make Decisions. 1:People Face Trade-offs. 2:The Cost of Something Is What You Give Up to Get It. 3:Rational People Think at the Margin. 4:People Respond to Incentives. Ⅱ.How People Interact. 5:Trade Can Make Everyone Better Off. 6:Markets Are Usually a Goodway to Organize Economic Activity. 7:Governments Can Sometimes Improve Market Outcomes. Ⅲ.How the Economy as a Whole Works 8:A Country's Standard of Living Depends on its Ability to Produce Goods and Services. 9:Prices Rise When the Government Prints Too Much Money. 10:Society Faces a Short-Run Trade-off between Inflation and Unemployment. 4  
  5. 5. Six  debates  over  Macroeconomic  Policy  
  6. 6. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  7. 7. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  8. 8. Pro:  Policymakers  should  try  to   stabilize  the  economy •  The  development  of  macroeconomic  theory  has  shown   policymakers  how  to  reduce  the  severity  of  economic   fluctua>ons.   •  When  aggregate  demand  demand  is  inadequate  to  ensure  full   employment,  policymaker  should  boost  government   spending,  cut  taxes,  and  expand  the  money  supply.   •  Such  policy  ac>ons  put  macroeconomic  theory  to  its  best  use   by  leading  to  a  more  stable  economy,  which  benefits   everyone.
  9. 9. Con:  Policymakers  should  not  try  to   stabilize  the  economy   •  Monetary  policy  and  fiscal  policy  do  not  affect  the  economy   immediately  but  instead  work  with  a  long  lag.   •  Too  o_en,  policymakers  trying  to  stabilize  the  economy  do   just  the  opposite.   –  The  Great  Depression  of  1930’s,  Lehman  shock  in  2008  etc   •  Economic  policymakers  should  refrain  from  intervening  o_en   with  monetary  and  fiscal  policy  and  be  content  if  they  do  no   harm.    
  10. 10. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  11. 11. Pro:  The  government  should  fight   recessions  with  spending  hikes Barack  Hussein  Obama Franklin  Delano  Roosevelt
  12. 12. Pro:  The  government  should  fight   recessions  with  spending  hikes •  Economists  have  understood  that  the  fundamental  problem  during   recessions  is  inadequate  aggregate  demand.   –  Monetary  policy  is  the  first  line  of  defense  against  economic  downturns.   –  Fiscal  policy  is  par>cularly  useful  when  the  tools  of  monetary  policy  lose  their   effec>veness.   •  Tradi>onal  Keynesian  analysis  indicates  that  increase  in  government   purchases  are  a  more  potent  tool  than  decrease  taxes.   –  When  the  government  gives  a  dollar  in  tax  cuts  to  a  household  tool  than  decreases  in   taxes.   •  Policymakers  focused  on  three  kinds  of  spending.   –  Shovel  ready  projects  such  as  as  repairs  to  highways  and  bridges.   –  Federal  aid  to  state  and  local  government.   –  Increased  payments  to  the  jobless  through  the  unemployment  insurance  system.  
  13. 13. Goods  and  services   market Labor  Market Financial  Market Interest,  money  supply,   Stock  price, Exchange  rate   Labor  demand,  Labor  demand   employment   Market  type  in  macroeconomics Consump>on+  Investment   +  Government  expenditure   +export-­‐import
  14. 14. Con:  The  government  should  fight   recessions  with  tax  cuts Ronald  Wilson  Reagan John  Fitzgerald  "Jack"  Kennedy,  
  15. 15. Con:  The  government  should  fight   recessions  with  tax  cuts •  Tax  cuts  have  important  influence  on  both  aggregate  demand  and   aggregate  supply.   –  Tax  cuts  increase  aggregate  demand  by  increasing  household’s  disposable  supply  and   inducing  increased  spending  on  investment  goods.   –  When  government  reduces  marginal  tax  rates,  workers  keep    a  higher  frac>on  of  any   income  they  earn.   •  There  are  various  problems  with  increasing  government  spending  during   recessions.   –  Consumers  understand  that  higher  government  spending,  together  with  the   government  borrowing  needed  to  finance  it,  will  likely  lead  to  higher  taxes  in  the  future.   –  The  an>cipa>on  of  those  future  taxes  will  induce  consumers  to  cut  back  spending  today.   Moreover,  like  most  taxes,  those  in  the  future  will  likely  cause  a  variety  of  deadweight   losses.  
  16. 16. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  17. 17. Pro:  Monetary  policy  should  be  made   by  rule •  Discre>on  in  the  conduct  of  monetary  policy  has  two  problems.   –  Poli>cal  Business  Cycle:  Central  bankers  are  some>mes  tempted  to  use   monetary  policy  to  affect  the  outcome  of  elec>ons.   –  Time  Inconsistency  of  Policy:  Central  bankers  tempted  to  renege  on  their   announcement  of  price  stability  to  achieve  lower  unemployment.   •  One  way  to  avoid  these  problems  with  discre>onary  policy  to   commit  the  central  bank  to  a  policy  rule.   •  An  ac>ve  rule  might  allow  some  feedback  from  the  state  of  the   economy  to  changes  in  monetary  policy.   –  To  increase  monetary  growth  by  1  %  for  every  percentage  point  that   unemployment  rises  above  its  natural  rate.  
  18. 18. Con:  Monetary  policy  should  not  be   made  by  rule •  There  may  be  pikalls  with  discre>onary  monetary  policy,   but  there  is  also  an  important  advantage  to  it.   –  In  the  1930s,  banks  failed  in  record  numbers.   –  In  the  1970s,  the  price  of  oil  skyrocketed  around  the  world.   –  In  October  1987,  the  stock  market  fell  by  22%  in  a  single  day.   –  From  2007  to  2009,  house  prices  dropped,  foreclosures  soared,  and   the  financial  system  experienced  significant  problems.   •  Despite  much  research  examining  the  costs  and  benefits  of   alterna>ve  rules,  economists  have  not  reached  consensus   about  what  a  good  rule  would  be.  
  19. 19. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  20. 20. Pro:  The  central  bank  should  aim  for   zero  infla>on   •  Infla>on  confers  no  benefit  on  society,  but  it  imposes  several  real   costs.   –  Shoeleather  costs  associated  with  reduced  money  holdings.   –  Menu  costs  associated  with  more  frequent  adjustment  of  prices.   –  Increased  variability  of  rela>ve  prices.   –  Unintended  changes  in  tax  liabili>es  due  to  nonindexa>on  of  the  tax  cost.     –  Confusion  and  inconvenience  resul>ng  from  a  changing  unit  of  account.   –  Arbitrary  redistribu>ons  of  wealth  associated  with  dollar-­‐denominated  debt.   •  One  advantage  of  a  zero  infla>on  target  is  that  zero  provides  a   more  natural  focal  point  for  policymakers  than  any    number.  
  21. 21. Con:  The  central  bank  should  not  aim   for  zero  infla>on •  The  benefits  of  zero  infla>on  are  small,  whereas  the  costs  of   reaching  zero  infla>on  are  large.   –  Es>mates  of  the  sacrifice  ra>o  suggest  that  reducing  infla>on  by  1  %   requires  giving  about  5%  of  one  year’s  output.   •  A  lille  bit  of  infla>on  may  even  be  a  good  thing.     –  Some  economists  believe  that  infla>on  “geases  the  wheels”  of  the   labor  market.  Because  workers  resist  cuts  in  nominal  wages.     •  Some>mes  the  economy  may  need  nega>ve  real  interest   rates  to  provide  sufficient  to  aggregate  demand   –  an  op>on  ruled  out  by  zero  infla>on.  
  22. 22. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  23. 23. Pro:  The  government  should  balance   its  budget •  The  most  direct  effect  of  the  government  debt  is  to  place  a   burden  on  future  genera>ons  of  taxpayers.   •  Budget  deficits→  nega>ve  public  saving  →  lower  na>onal   saving  →  raise  real  interest  rate→  to  fall  investment  →smaller   stock  market   •  U.S  government  debt  as  a  percentage  of  GDP  increased  from   26%  in  1980  to  50%  in  1995.   –  During  this  period,  U.S  experienced  neither  a  major  military  conflict   nor  a  major  economic  downturn.    
  24. 24. Con:  The  government  should  not   balance  its  budget •  The  problem  of  government  debt  is  o_en  exaggerated.   –  Although  the  government  debt  does  represent  a  tax  burden  on  younger   genera>ons,  it  is  not  large  compared  to  the  average  person’s  life>me   income.   •  Cri>cs  of  budget  deficits  some>mes  assert  that  the  government   debt  cannot  con>nue  to  rise  forever,  but  in  fact,  it  can.   –  As  long  as  the  government  debt  grows  more  slowly  than  the  na>on’s   income,  there  is  nothing  to  prevent  the  government  debt  from  growing   forever.   •  As  long  as  the  deficit  is  only  moderate  in  size,  there  will  never  be  a   day  of  reckoning  that  forces  the  budget  deficits  to  end  or  the   economy  to  collapse.  
  25. 25. Six  debates  over  Macroeconomic  Policy 1.  Should  monetary  and  fiscal  policymakers  try  to  stabilize  the   economy?     2.  Should  the  government  fight  recessions  with  spending  hikes   rather  than  tax  cuts?   3.  Should  monetary  policy  be  made  by  rule  rather  than  by   discre>on?   4.  Should  the  central  bank  aim  for  zero  infla>on?   5.  Should  the  government  balance  its  Budget?   6.  Should  the  tax  laws  be  reformed  encourage  Saving?  
  26. 26. Pro:  The  tax  laws  should  be  reformed   to  encourage  saving •  Unfortunately,  the  U.S  system  discourage  saving  by  taxing  the   return  to  saving  quite  heavily.   •  The  double  taxa>on  substan>ally  reduces  the  return  to  the   stockholder,  thereby  reducing  the  incen>ve  to  save.   •  A  switch  from  income  to  consump>on  taxa>on  would  greatly   increase  the  incen>ve  to  save.    
  27. 27. Con:  The  tax  laws  should  not  be   reformed  to  encourage  saving •  By  reducing  the  tax  burden  on  the  wealthy  who  can  take   advantage  of  these  accounts,  they  force  the  government  to   raise  the  tax  burden  on  the  poor.   •  There  are  ways  to  increase  na>onal  saving  other  than  by   giving  tax  breaks  to  the  rich.   –  Instead  of  trying  to  alter  the  tax  code  to  encourage  greater  private   saving,  policymakers  can  simply  raise  public  saving  by  reducing  the   budget  deficit,  perhaps  by  raising  taxes  on  the  wealthy.  
  28. 28. Why  we  should  study  economics •  It will help you understand the world in which you live. •  It will make you a more astute participant in the economy. •  It will give you a better understanding of both the potential and limits of economic policy.
  29. 29. 29   Advice  from  Kynes  「経済学の研究のためには、非常に高度な天賦の 才といったものは必要ない。経済学は哲学や自 然科学に比べればはるかに易しい学問といえる だろう。にもかかわらず優れた経済学者は非常 に稀にしか生まれない。このパラドックスを解く鍵 は、経済学者がいくつかの全く異なる才能を合わ せ持たなければならない、という所にある。彼は 一人にして数学者であり、歴史家であり、政治家 であり、哲学者でもなければならない。個々の問 題を一般的な観点から考えなければならないし、 また抽象と具体を同時に兼ね備えた考察を行わ なければならない。未来のために、過去に照らし、 現在を研究しなければならない。」 『雇用、利子及び貨幣に関する一般理論』より  

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