国际金融练习ch13

国际金融练习ch13
Chapter 13:
The Price Level, Real Output, and Economic Policymaking
I. Chapter Overview
Chapter 13 begins by showing how the aggregate demand schedule can be derived from the IS-LM-BP schedules of the previous three chapters. This is done by shifting the LM schedule in the real income-nominal interest rate plane with respect to changed in the price level, which produces the downward sloping aggregate demand schedule between aggregate price and real income. The text then demonstrates how fiscal and monetary expansions and contractions translate into shifts of the aggregate demand schedule. Parallels are drawn in each case between the relative effectiveness of fiscal and monetary policies in the IS-LM-BP model depending on (1) the exchange rate regime, (2) the degree of capital mobility and (3) whether or not sterilizations are implemented, and the extent to which these translate into a net shift in the position of the aggregate demand schedule.
Next, the aggregate supply schedule is derived on the basis of nominal rigidities in the labor market. Specifically, firms demand labor as an input for production, which is subject to diminishing marginal returns so that under perfect competition the value of marginal product is set equal to the nominal wage. Explicit and implicit contracts are used to justify nominal wage rigidity. The text then demonstrates how inflexible nominal wages lead to an upward sloping aggregate supply schedule, while fully flexible nominal wages lead to a vertical aggregate supply schedule. These are defined as the short-run and long-run
aggregate supply schedules respectively.
The chapter then uses the AS-AD model to study the consequences of fiscal and monetary policies for the aggregate price level and output under both fixed and floating exchange rates. A substantial amount of discussion is also devoted to the role that rational expectations can play in mitigating or potentially eliminating the consequences of anticipated policy actions. The chapter ends with an analysis of the potential bias toward an inflationary outcome when policymakers have full discretion, and discusses the more general issue of policy credibility in the presence of time inconsistency problems. II. Outline
A. Aggregate Demand
1. The Aggregate Demand Schedule
2. Factors that Determine the Position of the Aggregate Demand Schedule in an
Open Economy
a. Monetary Policy and Aggregate Demand
b. Monetary Policy and Aggregate Demand in an Open Economy with a
Fixed Exchange Rate
c. Monetary Policy and Aggregate Demand in an Open Economy with a
Floating Exchange Rate
d. Exchange-Rate Policy and Aggregate Demand in an Open Economy
e. Fiscal Policy and Aggregate Demand
f. Fiscal Policy and Aggregate Demand in an Open Economy with a Fixed
Exchange Rate
g. Fiscal Policy and Aggregate Demand in an Open Economy with a Floating
Exchange Rate
B. Aggregate Supply
1. Output and Employment Determination
a. The Production Function
b. The Marginal Product of Labor
c. The Demand for Labor
2. Wage Flexibility, Aggregate Supply, and the Price Level
a. The Determinants of Nominal Wages
b. Employment and Aggregate with Fixed versus Flexible Nominal Wages
c. The Aggregate Supply Schedule with Partial Wage Adjustment
C. Real Output, the Price Level, and Economic Policymaking
1. The Equilibrium Price Level and the Equilibrium Real Output Level
2. The Output and Price Level Effects of Economic Policies with Floating versus
Fixed Exchange Rates
a. Aggregate Demand, Output, and Inflation
b. Economic Policies, Output, and Inflation with Floating versus Fixed
Exchange RAtes
D. Rules versus Discretion in Economic Policymaking
1. Expectations and the Flexibility of Nominal Wages
a. The Rational Expectations Hypothesis
b. Wages, Employment, and Output When Policy Actions Are Anticipated
c. Wages, Employment, and Output When Policy Actions Are
Unanticipated
2. Discretion, Credibility, and Inflation
a. The Inflation Bias of Discretionary Economic Policymaking
b. The Incentive to Inflate
c. Workers’ Res ponse
d. The Problem of Policy Credibility
e. Making Economic Policies Credible
3. Support for Central Bank Independence
E. Summary
III. Fundamental Issues
1. What is the aggregate demand schedule?
2. What factors determine the extent to which changes in the quantity of money can
influence aggregate demand in an open economy?
3. What factors determine the extent to which fiscal policy actions can influence
aggregate demand in an open economy?
4. What is the aggregate supply schedule?
5. How are a nation's price level and volume of real output determined, and how might
economic policymakers influence inflation and real output?
6. Why does the rational expectations hypothesis indicate that economic policies may
have limited real output effects and that the credibility of policymakers is important? IV. Chapter Features
1. Management Notebook: "Where in the World Do Workers Product the Most Output
per Hour?"
This management notebook considers evidence about which nations have the most productive workers based on output per
hour worked. Even though residents of the United States earn the highest incomes per capita, average hourly labor productivity is higher in six European nations.
For Critical Analysis: What must be true is that in the United States, either more people are employed, or people work more hours, or both.
2. Management Notebook: "Deflation Challenges the Japanese Wage System"
This notebook discusses problems that deflation has posed for Japan’s traditional shunto (“spring livelihood offensive”) for wage negotiations, in which wage deals, including automatic pay raises based on age and seniority, between large companies and unions commonly lay groundwork for wage boosts at smaller companies. In the face of falling prices that have reduced companies’ revenues, seniority-based wage increases are disappearing, and many workers have actually received pay cuts. Companies often single out only the most productive workers for bonuses.
For Critical Analysis: The rate of growth in real wages equals the rate of increase in nominal wages minus the rate of increase in the price level, which implies the equation, -
4 percent = -7 percent – (-3 percent); that is, the price level has fallen by about 3 percent since 1997, so these date indicate that nominal wages have fallen slightly faster than the price level.
3. Policy Notebook: "Are Floating-Exchange-Rate Systems More Inflationary?"
This notebook describes how the most widely used past approach to classifying nations
by their exchange rate regimes has relied on the stated intentions of national governments. According to this
classification method, average annual inflation is 11 percentage points
higher in countries with floating exchange rates than in nations with fixed exchange rates. Recent efforts to classify nations according to the exchange-rate policies they actually pursued indicate that inflation is in fact roughly 9 percentage points lower in countries with floating-exchange-rate regimes than in countries with fixed-exchange-rate regimes. For Critical Analysis: Undoubtedly, some countries’ policymakers truly intend to let their exchange rates float but ultimately give in to the temptation to intervene in foreign exchange markets to keep exchange rates from changing after all.
V. Answers to End of Chapter Questions
1. False. As discussed in this chapter, under a floating exchange rate the potency of
monetary policy's effect on aggregate demand and, consequently, the price level and real output, is enhanced by greater capital mobility. The reason is that a monetary expansion induces a fall in the value of the domestic currency that induces a rise in exports, which in turn reinforces the expansionary effect of the monetary expansion.
2. Under a fixed exchange rate and relatively high capital mobility, an expansionary
fiscal policy places upward pressure on the value of a nation's currency, which
requires the nation's central bank to purchase foreign exchange reserves. If this
monetary action is unsterilized, then the domestic money supply also expands,
thereby reinforcing the effect of the expansionary fiscal
policy on aggregate demand and the equilibrium price level. If a key goal is to limit inflation, then fiscal policy restraints may be justified.
3. To bring about a devaluation, the nation's central bank must increase the money stock
for a time. When the value of the domestic currency falls, the BP and IS schedules shift to the right, so that equilibrium real income rises at any given price level. Thus, there is an increase in aggregate demand. If workers' expectations are rational, and if wage adjustments are rapid, then there will be a short-run increase in equilibrium real output following this increase in aggregate demand only if the devaluation is
unanticipated, so that there is no short-run shift in the position of the aggregate supply schedule. If workers are able to anticipate the devaluation, however, then they will immediately bargain for higher wages in light of their expectations of higher prices.
The resulting wage increase causes the aggregate supply schedule to shirt upward and to the left at the same time that aggregate demand increases, so that real output is
unchanged in equilibrium.
4. If all other factors are unchanged, then a boost in nominal wages causes the aggregate
supply schedule to shift upward and leftward along the aggregate demand schedule.
As a result, the equilibrium price level rises, and equilibrium real output declines.
5. The theory of discretionary policymaking implies that the central bank will devalue
under these circumstances. Given the central bank's low level
of concern about
inflation, it will devalue in an effort to raise aggregate demand (see question 3 above), thereby causing and upward movement along the economy's aggregate supply
schedule and a short-run increase in real output. Since workers realize that the
required devaluation will raise inflation by 10 percent, they will bargain for a wage increase. This will cause aggregate supply to shift upward and leftward. The result will be inflation but no change in equilibrium real output.
6. Nominal wages fully indexed to inflation will render any discretionary policy to
immediately be offset by labor supply restrictions that keep equilibrium output from changing. Thus, a central bank's incentive to produce an inflation bias is eliminated.
7. To index a wage based on inflation when aggregate supply shocks dominate the
economy would be destabilizing. This occurs because of the resulting shape of the aggregate supply schedule under varying degrees of indexation. If wages are fully indexed, a vertical aggregate supply schedule results. If, however, wages are only partially indexed, the aggregate supply schedule is upward sloping. Consequently, if we consider the effect of an adverse supply shock under each alternative, equilibrium income will fall further with fully indexed wages. Thus, such wage indexation would not be desirable.
8. The statement indicates that an argument in favor of central bank contracts is the
balance between the benefits of central bank independence from political influence and responsibility for economy outcomes.
However, the phrase, "subjecting them to societal rule" is indicative of political influence. Thus, the statement seems to be somewhat misleading. It may be more appropriate to replace that phrase with,
"holding the central bank accountable for expected economic outcomes".
9. Which leader is correct will depend on the source of economic growth. If growth
were assumed to come from demand management, the German leaders would be correct. However, if growth were supply side driven, lower inflation and lower
unemployment would complement each other.
10. Factors other than central bank independence affect inflation in an economy. In
particular, the statement focuses upon developing economies. As stated, these
economies suffer from the lack of property rights, bankruptcy rules, judicial
adjudication, etc. that exist in developed economies. Without these fundamentals in place, many economic policies that result in a stable economic environment will no longer have a stabilizing effect.
VI. Multiple Choice Questions
1. The aggregate demand schedule is
A. the set of combinations of real income and the price level that are consistent with
IS-LM equilibrium.
B. used only in closed economy models of the macroeconomy.
C. unaffected by an increase in autonomous expenditures.
D. another name for the IS schedule.
Answer: A
2. Which of the following effects best explains the slope of the aggregate demand
schedule?
A. a reduction in the price level on the real wage
B. an increase in the price level on equilibrium income
C. an increase in government spending on equilibrium income
D. an increase in the nominal money supply on nominal income
Answer: B
3. In a closed economy, an expansionary monetary policy leads to a
A. rightward shift in the LM schedule and a rise in aggregate demand.
B. rightward shift in the IS schedule and a rise in aggregate demand.
C. leftward shift in the LM schedule and a fall in aggregate demand.
D. leftward shift in the IS schedule and a fall in aggregate demand.
Answer: A
4. In a closed economy with inflexible wages, a decrease in the nominal quantity of
money leads to a
A. higher equilibrium interest rate and higher equilibrium level of real output.
B. lower equilibrium interest rate and higher equilibrium level of real output.
C. higher equilibrium interest rate and lower equilibrium level of real output.
D. lower equilibrium interest rate and lower equilibrium level of real output.
Answer: C
5. In a closed economy, an increase in the nominal quantity of money induces a
A. rightward movement along the aggregate demand schedule.
B. leftward movement along the aggregate demand schedule.
C. rightward shift of the aggregate demand schedule.
D. leftward shift of the aggregate demand schedule.
Answer: C
6. In an open economy with a fixed exchange rate, expansionary monetary policy only
affects output when
A. there is a low capital mobility.
B. there is high capital mobility.
D. the central bank sterilizes its interventions.
Answer: D
7. In an economy with a flexible exchange rate, an expansion of the nominal stock of
money leads to the largest shift in aggregate demand when
A. the economy is closed.
B. there is low capital mobility.
C. there is high capital mobility.
D. there is perfect capital mobility.
Answer: D
8. In an economy with a fixed exchange rate, an unexpected
devaluation induces
A. a leftward movement along the aggregate demand schedule.
B. a rightward shift in the aggregate demand schedule.
C. a leftward shift in the aggregate demand schedule.
D. no change in the aggregate demand schedule.
Answer: B
9. A central bank that attempts to increase output through the use of an unexpected
devaluation will be most effective when
A. wages are flexible.
B. capital mobility is low.
C. capital mobility is high.
D. capital mobility is perfect.
Answer: D
10. In a closed economy, an increase in government spending leads to a
A. rightward shift in the LM schedule and an increase in aggregate demand.
B. leftward shift in the LM schedule and a decrease in aggregate demand.
C. rightward shift in the IS schedule and an increase in aggregate demand.
D. leftward shift in the IS schedule and a decrease in aggregate demand.
Answer: C
11. In an open economy with a fixed exchange rate, a fiscal expansion will lead to a
balance-of-payments deficit when
B. the LM schedule is steeper that the BP schedule.
C. the BP schedule is steeper than the LM schedule.
D. There is no circumstance in which a fiscal expansion in an open economy with a
fixed exchange rate leads to a balance-of-payments deficit.
Answer: C
12. In an open economy with a floating exchange rate, a fiscal expansion has its largest
effect on aggregate demand
A. when there is perfect capital mobility.
B. when the BP schedule is steeper than the LM schedule.
C. when the LM schedule is steeper than the BP schedule.
D. under no circumstance, because fiscal expansion in an open economy has no
effect on aggregate demand.
Answer: B
13. The production function defines the relationship between
A. the aggregate price level and the quantity of output supplied.
B. the aggregate price level and the quantity of output demanded.
C. the marginal product of labor and the quantity of labor demanded.
D. the quantity of factors of production employed and the level of output produced
with those inputs.
Answer: D
14. The marginal product of labor is defined as
A. the value of the output produced when labor is employed in production.
B. total output produced divided by the quantity of labor
used in its production.
C. the additional quantity of output that firms can produce by employing another unit
of labor.
D. the return that owners of capital earn when they rent out capital services to owners
of labor.
Answer: C
15. As a consequence of the law of diminishing returns,
A. the aggregate supply schedule is vertical.
B. the production function is bowed downward.
C. the aggregate demand schedule is downward sloping.
D. the nominal wage rate is equal to the marginal product of labor.
Answer: B
16. In a perfectly competitive labor market, the nominal wage is equal to
A. the minimum wage.
B. the price of the output.
C. the value of the average product of labor.
D. the value of the marginal product of labor.
Answer: D
17. When wages are inflexible, an increase in the price level leads to
A. a decrease in the quantity of output supplied.
B. an increase in the quantity of output supplied.
C. no change in the aggregate quantity of output supplied.
D. a rightward shift in the entire aggregate supply schedule.
Answer: B
18. The aggregate supply schedule relates
A. aggregate expenditures and the price level.
B. the aggregate price level and the nominal interest rate.
C. the quantity of real output supplied and the price level.
D. the quantity of real output supplied and the nominal interest rate.
Answer: C
19. When wages are perfectly flexible, an increase in the aggregate price level leads to
A. an increase in the quantity of output supplied.
B. a decrease in the quantity of output supplied.
C. no change in the aggregate quantity of output supplied.
D. a rightward shift in the entire aggregate supply schedule.
Answer: C
20. Because most nations have only partial nominal wage adjustment in the short run, the
standard model of aggregate supply includes
A. both an upward sloping short-run aggregate supply schedule and a horizontal
long-run aggregate supply schedule.
B. both a vertical long-run aggregate supply schedule and an upward sloping short-
run aggregate supply schedule.
C. a long-run aggregate supply schedule that is upward sloping.
D. a vertical short-run aggregate supply schedule.
Answer: B
21. Which of the following is consistent with rational expectations?
A. Individual agents using a proper understanding of economic theory in forming
expectations.
B. Individual agents using current information in forming expectations.
C. Individual agents using past information in forming expectations.
D. All of the above.
Answer: D
22. The equilibrium price level and real output level are determined by the intersection of
A. the aggregate supply and aggregate demand schedules.
B. money supply and money demand schedules.
C. the aggregate supply and IS schedules.
D. the IS and BP schedules.
Answer: A
23. If nominal wages are not fully indexed to changes in the price level, an expansionary
monetary policy leads to a
A. higher level of real output and a higher aggregate price level.
B. higher level of real output and a lower aggregate price level.
C. lower level of output and a higher aggregate price level.
D. lower level of output and a lower aggregate price level.
Answer: A
24. The view that well informed workers and firms can anticipate the effects of particular
policy actions is known as the
A. locomotive effect.
B. sterilization effect.
C. beggar-thy-neighbor effect.
D. rational expectations hypothesis.
Answer: D
25. A monetary policy expansion that is fully anticipated by workers and firms leads to
A. no change in either the level of equilibrium real output or the price level.
B. a higher level of equilibrium real output and a higher aggregate price level.
C. a higher aggregate price level, but no change in the level of equilibrium real
output.
D. a higher level of equilibrium real output, but no change in the aggregate price
level.
Answer: C
26. If workers and firms have rational expectations, the short-run impact of an
unexpected monetary policy expansion is
A. no change in either the level of equilibrium real output or the price level.
B. a higher level of equilibrium real output and a higher aggregate price level.
C. a higher aggregate price level, but no change in the level of equilibrium real
output.
D. a higher level of equilibrium real output, but no change in the aggregate price
level.
Answer: B
27. The capacity output level is defined as the
A. level of real GDP that occurs at the intersection of the short run aggregate supply
and demand schedules.
B. level of real GDP that could be produce if all factors of production were fully
employed.
C. value of total sales of final goods and services, adjusted for changes in the price
level.
D. level of real GDP that occurs at the intersection of the IS and LM schedules.
Answer: B
28. An example of a time inconsistency problem occurs when
A. a policymaker can better achieve his or her objectives by violating a prior policy
stance.
B. an economy with a fixed exchange rate is experiencing a balance-of-payments
deficit.
C. a central banker fully sterilizes all monetary interventions.
D. the nominal interest rate exceeds the rate of inflation.
Answer: A
29. The absence of policy credibility can lead to
A. the beggar-thy-neighbor effect.
B. rational expectations.
C. the locomotive effect.
D. an inflation bias.
Answer: D
30. Which of the following is not an example of a strategy that is used to enhance a
monetary authority's policy credibility?
A. appointing a conservative policymaker.
B. constitutional limitations.
C. establishing a reputation.
D. sterilization.
Answer: D
31. Cross-country comparisons tend to show that central bank independence is correlated
with
A. low levels of average inflation and low inflation variability
B. high levels of average inflation and high inflation variability
C. a low level of average inflation and a high level of inflation variability
D. a high level of average inflation and a low level of inflation variability
Answer: A。