CHAPTER 19
BIG EVENTS: THE ECONOMICS OF DEPRESSION,
HYPERINFLATION, AND DEFICITS
Chapter Outline
?The Great Depression and its impact on macroeconomics
?Money and inflation
?Monetarism and the rational expectations approach
?The effects of hyperinflation
?Disinflation and the sacrifice ratio
?Credibility
?The Fed's dilemma
?Deficits, money growth, and seigniorage
?The inflation tax
?Federal government outlays and revenues
?The primary deficit
?The debt-to-income ratio
?The burden of the debt
?Financing Social Security
Changes from the Previous Edition
The material in this chapter was in Chapter 18 in the previous edition. It has been updated, Boxes 19-2 and 19-5 have been added, and other boxes have been renumbered accordingly. Introduction to the Material
The Great Depression in the 1930s presented an economic crisis of enormous proportions. Between 1929 and 1933, real GDP in the U.S. fell by almost 30% and unemployment reached an all-time high of almost 25%. While the economy grew fairly rapidly from 1933-37, unemployment remained in the double digit range. In 1937/38, there was another major recession and the unemployment rate remained above 5% until 1942. In the 1930s unemployment averaged 18.8%, but by 1939 real GDP had recovered to its 1929 level.
The classical economists of the time were not equipped to explain the existence of such substantial and persistent unemployment or to prescribe policies to deal with it. Only in 1936, in John Maynard Keynes’book The General Theory of Employment, Interest and Money, was a macroeconomic theory introduced upon which policies to keep the economy out of future recessions could be based. Keynes’ theory provided an explanation of what had happened during the Great Depression and suggested policies that might have prevented it.
The stock market crash of 1929 is often seen as the catalyst for the Great Depression but, in fact, economic activity actually started to decline even before the crash. What might well have
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been an average recession turned into a very severe depression due to the inept economic policies employed at the time. The Fed failed to provide needed liquidity to banks and did little to prevent the collapse of the financial system. The huge contraction in money supply due to the large numbers of bank failures caused the economic downturn. Fiscal policy was weak at best. Politicians concerned with balancing the budget raised taxes to match increases in government spending, so the decline in aggregate demand was not counteracted.
Many other countries also suffered during the same period, mainly as a result of the collapse of the international financial system and the enactment of high tariffs worldwide. These policies were designed to protect domestic producers in an attempt to improve each country’s domestic trade balance at the expense of foreign trading partners. However, the attempts to "export" unemployment ultimately resulted in an overall decline in world trade and production.
In the U.S., many institutional changes and administrative actions, collectively known as the New Deal, were implemented in the 1930s. The Fed was reorganized and new institutions were created, including the FDIC, the SEC, and the Social Security Administration. Public works programs and a program to establish orderly competition among firms were also implemented.
The experience of the Great Depression led to the belief that the economy is inherently unstable and active stabilization policy is needed to maintain full employment. Keynes was an advocate of active government policy. In his work, he explained what had happened in the Great Depression and what could be done to avoid a recurrence. Many years later, Milton Friedman and Anna Schwartz offered a different explanation. In their book A Monetary History of the United States, Friedman and Schwartz argued that the severe decline in money supply, caused by the Fed’s failure to prevent banks from failing, was the reason for the severity of the Great Depression. They claimed that monetary policy is very powerful and that fluctuations in money supply can explain most of the fluctuations in GDP over the last century. This argument provided the impetus for new research on the effects of fiscal and monetary stabilization policies. While economists are still debating these issues, we can conclude that monetary policy can affect the behavior of output in the short and medium run, but not in the long run. In the long run, increases in the growth rate of money supply will simply lead to increases in the rate of inflation. Box 19-3 gives an overview of the monetarist positions on the importance of money for the economy, while Box 19-2 quotes Fed Chairman Ben Bernanke, who admits that the magnitude of the Great Depression was indeed the result of the Fed’s action—or, more accurately, inaction.
The link between inflation and monetary growth can easily be derived from the quantity theory of money equation:
MV = PY ==> %?M + %?V = %?P + %?Y ==> m + v = π + y ==> π = m - y + v In other words, the rate of inflation (%?P = π) is determined by the difference between the growth rate of nominal money supply (%?M = m) and the growth rate of real output (%?Y = y), adjusted for the percentage change in the income velocity of money (%?V = v).
Figure 19-1 shows that trends in the rate of inflation and the growth of money supply (M2) have been somewhat similar over the last four decades. There is plenty of evidence to support the notion that in the long run, inflation is a monetary phenomenon here in the U.S. as well as in other countries. However, there are short-run variations, indicating that changes in velocity and output growth have also affected the inflation rate. By the mid 1990s, the relationship between
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M2 growth and inflation had largely broken down, even for the long run. It is still true, however, that there has never been inflation in the long run without rapid growth of money supply, and the faster money grew the higher the rate of inflation.
Although there is no exact definition, countries are said to experience hyperinflation when the inflation rate reaches 1,000% annually. Countries that have experienced hyperinflation have all had huge budget deficits which, in many cases, originated from increased government spending during wartime. A classical example is the German hyperinflation of 1922/23. In an economy experiencing hyperinflation, there is often widespread indexing, most likely to foreign exchange rates rather than to the price level, since prices are changing so fast. Eventually, hyperinflation becomes too much to bear and the government is forced to take harsh measures, including fiscal reform and the introduction of a new monetary unit pegging the new money to a foreign currency. Box 19-4 on the situation in Bolivia in the 1980s provides a good example of how hyperinflation can be stopped. It also points out that the costs are great in terms of decreasing per-capita income. In 1985, Bolivia stopped external debt service, raised taxes, reduced money creation, and stabilized the exchange rate. Inflation came down quickly, but per-capita income in 1989 was 35 percent less than it had been a decade earlier.
In its fight against hyperinflation, Israel tried to keep unemployment rates low by instituting wage and price controls while also sharply cutting budget deficits and rationing credit. These measures reduced the rate of inflation significantly. In the late 1980s, the governments of Argentina and Brazil imposed wage-price controls but failed to supplement them with fiscal austerity, so the result was much less satisfactory, although they, like many South American countries eventually succeeded in lowering their inflation rates. In the early 1990s, countries in Eastern Europe experienced brief periods of high inflation during their adjustments from centrally planned economies to more market based economies (as shown in Table 19-6). There is no guarantee that periods of hyperinflation will not surface again. New Box 19-5 describes the situation in Zimbabwe where the decision made in 2006 to print more money to finance higher government spending led to inflation rates in excess of 1,000%.
When inflation is high, policy makers must focus on reducing it without causing a major economic downturn. This is fairly difficult to accomplish, however, since labor contracts tend to reflect past expectations and new contract negotiations take time. In addition, it may be difficult for a central bank to gain credibility in its fight against inflation because of its behavior in the past. Credibility is important, since inflationary expectations adjust down faster if people believe that a government is serious in its attempt to reduce inflation. If this is the case, the expectations-adjusted Phillips curve shifts to the left sooner and the economy adjusts more quickly to the full-employment level of output at a lower inflation rate. But some increase in unemployment is almost always needed to reduce inflation, since real wages need to adjust down to their full-employment level. The costs to society are often measured in terms of the sacrifice ratio, that is, the ratio of the cumulative percentage loss of GDP to the achieved reduction in the inflation rate.
Probably all economists now agree with the monetarist propositions that rapid money growth tends to be inflationary and inflation cannot be kept low unless money growth is kept low. We also know that monetary policy has long and variable lags. But other monetarist positions remain more controversial, including those that suggest that the economy is inherently stable and that monetary targets are better than interest rate targets. The rational expectations approach can be seen as an extension of the monetarist approach, with a strong belief that markets clear rapidly
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and people use all information available to them. This is why they advocate policy rules rather than discretion and place emphasis on the credibility of policy makers. Box 19-6 highlights the rational expectations approach.
Any government that is unwilling to show fiscal restraint will ultimately be faced with excessive money growth and an increase in the inflation rate. Continued large government budget deficits create a policy dilemma for a central bank, which must decide whether to monetize the debt. If the central bank decides not to finance the debt, the increased borrowing needs of the government may drive interest rates up, leading to the crowding out of private spending. The central bank may then be blamed for slowing down economic growth. But if the central bank is worried about high interest rates and monetizes the debt in order to keep interest rates low, inflation may increase with the central bank taking the blame.
The financing of government spending through the creation of high-powered money is an alternative to explicit taxation. Inflation acts like a tax since the government can spend more by printing money while people can spend less, since some of their income must be used to increase their nominal money holdings. The inflation tax revenue is defined as:
inflation tax revenue = (inflation rate)*(the real money base).
The ability of the government to raise additional tax revenue through the creation of money (and therefore inflation) is called seigniorage, and Table 19-7 shows some empirical evidence of the inflation tax revenue raised as percentage of GDP for some Latin American countries. However, there is a limit to how much revenue a government can raise through an inflation tax. As inflation increases, people reduce their currency holdings and banks reduce their excess reserves, since holding money becomes more costly. Eventually the real monetary base falls so much that the government's inflation tax revenue decreases. Figure 19-3 shows this graphically.
While higher deficits can cause higher inflation if they are financed through money creation, higher inflation may also contribute to deficits, since inflation reduces the real value of tax payments. In addition, high nominal interest rates (caused by high inflation) raise the nominal interest payments the government must make on the national debt. The inflation-adjusted deficit corrects for that and is defined in the following way:
inflation-adjusted deficit = total deficit - (inflation rate)*(national debt).
Large government budget deficits and rapid monetary expansion seem to be inevitable parts of hyperinflation. The high rate of monetary expansion originates in the government's desire to raise its inflation tax revenue. However, the government can only be successful if it prints money faster than the public anticipates. Eventually, the process will break down, as the real money base becomes smaller and smaller.
During the 1980s, the U.S. experienced very large budget deficits, which were temporarily brought under control in the late 1990s, only to increase sharply again in 2002. Figure 19-4 shows the trend in U.S. budget deficits as percentage of GDP, while Tables 19-8 and 19-9 give an overview of trends in the U.S. government's outlays and revenues. It is interesting to note that entitlements and interest payments on the national debt have increased significantly over the last
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four decades. On the revenue side, corporate income taxes as a share of GDP have declined, while social insurance taxes have increased substantially.
To highlight the role of the national debt in the budget, it is useful to distinguish between the actual budget deficit and the primary (non-interest) budget deficit. The U.S. budget deficits in the 1990s were actually more a result of high interest payments on the previously incurred debt than of government spending exceeding tax revenues. This is the legacy of past deficits. As the national debt accumulates, its interest costs accelerate, contributing even more to the budget deficit. The national debt is the result of all past and present budget deficits, and the process by which the Treasury finances the debt is called debt management. As old government securities mature, the Treasury issues new securities to make the payments on old ones.
Robert Eisner has argued that it is important to recognize that the government has assets and not just debts. Any spending on infrastructure should be treated as accumulation of real capital and offset by the debt issued to pay for it. In other words, just like private spending, government expenditures should be separated into government “consumption” and government “investment.”
With the U.S. gross national debt now exceeding $8.5 trillion (or over $28,000 per capita), it becomes important to consider its real burden. If individuals who hold government bonds consider an increase in government debt as an increase in their personal wealth, they will consume more and a lower share of GDP will be invested. This will lead to a lower rate of capital accumulation and slower future economic growth. Another concern is that foreigners hold a large part of the debt. Since the burden of future tax payments on this part of the debt (plus interest) will fall on U.S. taxpayers while the recipients of these payments will be foreigners, there will be a reduction in U.S. net wealth.
High deficits cannot be sustained indefinitely, but as long as national income is growing faster than the national debt (implying a declining debt-income ratio), the potential for instability is fairly low. In the 1990s, there was widespread sentiment that government had grown too big and that sound fiscal policy had to be implemented. The fiscal restriction finally succeeded in turning the large budget deficits of the 1980s into budget surpluses in 1998. A debate quickly began among politicians about the best ways to put the surplus to use. Was it better to cut taxes, increase spending, or gradually pay off the national debt? The path chosen by the Bush administration was a massive tax cut, leading to renewed budget deficits in 2002.
Another debate revolves around Social Security reform. There is increasing concern about the financial difficulties that the Social Security system will face in the near future. The system is financed to a large extent on a pay-as-you-go basis, with most of the earmarked taxes paid by current workers being used immediately to finance the Social Security benefits of current retirees. Such a transfer of resources from the young to the old can be accomplished if:
? A growing population increases the ratio of workers to retirees. If population growth slows, however, then contributions have to be increased or benefits have to be cut.
?High-income growth allows retirement benefits to be higher than past contributions, since the source of the benefits is the higher income of the younger generations. If income growth slows, however, then the system may face financing difficulties.
?The political situation is favorable. A larger percentage of older people than younger people vote so the elderly can enforce the intergenerational transfer through the political system. But at some point, the young, who expect to receive lower benefits than their parents relative to their contributions, may refuse to support the system through their taxes.
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While the Social Security system is often seen as a “forced savings system,” which makes sure that everyone accumulates some wealth for retirement, there is strong empirical evidence that the system actually reduces national saving due to its pay-as-you-go financing. The decline in saving reduces the rate of capital accumulation, which lowers productivity and future living standards.
The Social Security trust fund actually has been growing as a result of the Social Security Reform of 1983, but current predictions are that the system will be bankrupt after 2045 when most of the baby-boomer generation will have retired. While most people do not wish to see the Social Security system totally abandoned, additional reforms are very likely in the near future. The central question is how to earn higher returns on the funds invested to prevent the system from insolvency and how to preserve equity for those who have already paid into the system. Suggestions for Lecturing
Students who follow the news see stock prices fluctuate daily and they probably heard about past stock market bubbles and crashes. These students will be curious about the impact of major swings in stock market activity on the economy. Most people assume that the stock market crash of October, 1929 marked the beginning of the Great Depression and are not aware that economic activity had actually begun to decline earlier. A good way to introduce the material in this chapter is to ask: “Could a Great Depression happen again?” or “Do stock market crashes cause economic downturns?” Either will lead to a lively class discussion that can help to highlight several of the issues raised in the chapter. In this discussion the major stock market crash of October, 1987 and the decline in (especially high-tech) stock values that started in March, 2000 will undoubtedly come up. They are reminders that stock market bubbles will always eventually burst and that there is considerable risk associated with buying stocks.
Most economists now agree that the magnitude of the Great Depression was exacerbated by inadequate fiscal and monetary policy responses. The Fed’s failure to inject e nough liquidity into the banking system to prevent failures led to a severe contraction in the supply of money and an economic downturn, and. Policy makers also did little initially to stimulate economic activity through fiscal policy. The severity of the economic situation in the 1930’s is not surprising to economists today, as no well-developed economic theory existed at the time that could deal with a disturbance of this magnitude. It was not until John Maynard Keynes offered an explanation of what had happened during the Great Depression and suggested ways to prevent future recessions that macroeconomists began to ponder the values of fiscal and monetary stabilization policies. It is no wonder that Keynes is seen by many as the “father of all macroeconomists.”
Economic theories are generally pro ducts of their time and, as mentioned above, Keynes’macroeconomic theory was developed as a result of the Great Depression. His explanation and prescription for preventing future depressions were widely accepted, but did not have much impact on policy making in the U.S. until the 1960s, when the government followed (mostly fiscal) activist policies to ensure full employment.
The handling of the major stock market crash of 1987 appears to indicate that policy makers have learned from past mistakes. Stock values dropped by more than 24% in October of 1987, but we did we not see a severe downturn in economic activity. Why not? For one, Alan
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Greenspan, who had been appointed as chair of the Board of Governors of the Fed only a few months earlier, was conscious of what had happened in 1929 and immediately assured financial markets that the Fed would provide the liquidity needed to prevent a financial collapse. The Fed quickly started to undertake open market purchases in an effort to drive interest rates down. In addition, as a result of institutional changes implemented after the Great Depression, government now has a much larger role in the economy. Students should be aware that the Great Depression not only shaped modern macroeconomic thinking and approaches to stabilization policy, but also shaped the structure of many U.S. institutions. Instructors may want to spend some time talking about these institutions and their importance to our economy.
It also should be noted that the economy was in much better shape when the stock market crashed in 1987 than it was in 1929. While we can only speculate on what would have happened had the economy been in worse shape, the existence of programs such as Social Security and unemployment insurance would have dampened the severity of a downturn by providing some automatic stability. In addition, the existence of the FDIC, which insures all bank deposits up to $100,000, now serves to avoid panic in financial markets and runs on banks.
The recession in 1981/82, which was the most severe recession since the Great Depression and brought the unemployment level close to 11%, provides another good example that policy makers now react much more swiftly to major economic upheavals. Even though the recession was fairly severe, it did not last for an extended period, since expansionary policies were implemented almost immediately after the magnitude of the downturn became clear.
There are still disagreements about the primary causes for the Great Depression and these should be clarified. The Keynesian explanation concentrates on spending behavior, that is, the reduction in consumption and the collapse of investment. The decrease in aggregate demand was exacerbated by the restrictive fiscal policy implemented by the government trying to balance the budget. The monetarist explanation concentrates on the behavior of money and asserts that the Fed failed to prevent the collapse of the banking system. The large number of bank failures led to a loss of confidence in the banking system, an enormous increase in the currency-deposit ratio, and therefore a huge decrease in the money multiplier. Monetarists see the resulting severe decline in money supply as the cause of the Great Depression. Both explanations fit the facts and it is important for instructors to point out that there is no inherent conflict between them; in fact, they complement one another.
While the programs of the New Deal are largely credited with revitalizing the economy in the mid-1930s, probably one of the most important factors was the sharp increase in money supply, starting in 1933. This is often a forgotten fact. It should be noted that while unemployment remained high, the deflation of prices and wages stopped after 1933, and output began to rebound. In addition, some of the programs implemented by the government after the Great Depression helped to keep wages from falling further.
The fact that unemployment’s downward pressure on wages tends to weaken if high unemployment is persistent should also be mentioned at this point. The possibility that the behavior of nominal wages affects the rate of inflation should be discussed with reference to the situation in some European countries, where the unemployment rate has been above the levels experienced in the U.S. for quite some time.
The German hyperinflation of 1922-23, when the inflation rate averaged 322% per month, provides another example of a major economic event that shaped macroeconomic thinking. But
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students will probably prefer to discuss more recent examples, such as the Bolivian experience of the 1980s highlighted in Box 19-4 or the situation in Zimbabwe starting in 2006. Both cases make clear that the cost of stopping hyperinflation can be extremely high in terms of a decreased standard of living. The discussion should make it clear that large budget deficits and rapid monetary growth are always prevalent in times of hyperinflation, and only draconian measures can ensure a reduction in inflationary expectations. Without such measures the economy will collapse and has to be completely restructured, with the introduction of a new monetary unit that may be pegged to a foreign exchange rate.
There is no exact definition of hyperinflation, but it is said to exist when the inflation rate reaches 1,000% on an annual basis. Students will always remember the following definition of inflation in general: “inflation is nothing more than too much money chasing too few goods.” But is inflation “always and everywhere a monetary phenomenon,” as Milton Friedman put it? Figure 19-1 indicates that the rate of inflation and the growth rate of M2 show somewhat similar long-run trends (at least until about 1993), but there are large variations in the short run. In other words, the link between monetary growth and the inflation rate is by no means precise. For one, growth in output affects the inflation rate and real money holdings. Interest rate changes and financial innovations also affect desired money holdings and therefore the income velocity of money. Empirical evidence indicates that the velocity of M2 has shown a fairly constant long-run trend from the 1960s to the 1990s, while the velocity of M1 has fluctuated significantly over the last few decades. Considering the enormous changes that took place in the U.S. banking system in the 1980s, it is surprising that the income velocity of M2 actually stayed as stable as it did. By the late 1990s, the link between M2 growth and the inflation rate had largely broken down; the possible causes and any monetary policy implications should be discussed.
By now, students should be familiar with the quantity theory of money equation and should be able to derive the equation that shows the long-run relationship between money growth, output growth, velocity changes, and the rate of inflation. We can thus derive the following:
MV = PY ==> %?M + %?V = %?P + %?Y ==> %?P = %?M - %?Y + %?V
==> π = m - y + v.
This equation indicates that higher growth rates of money (%?M = m) adjusted for growth in output (%?Y = y) and changes in velocity (%?V = v) are associated with higher inflation rates (%?P = π). The strict monetary growth rule is based on this equation and suggests that a zero inflation rate can be achieved if money supply is only allowed to grow at the same rate as the long-run trend of output, assuming that velocity remains stable. It should be made clear, that this equation shows only a long-run relationship and that output growth and velocity can be highly variable in the short run, causing great variations in the inflation rate.
Besides looking at the role of monetary growth in determining the inflation rate, instructors may also want to spend some time looking at the role of nominal wages and labor productivity. Just by recalling the simple equation
w = W/P,
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that is, the real wage rate (w) is equal to the nominal wage rate (W) divided by the price level (P), one can derive the following relationship:
%?w = %?W - %?P ==> %?P = %?W - %?w ==> π = %?W - %?MPN,
assuming that, in a perfectly competitive labor market, the real wage rate (w) is equal to the marginal product of labor (MPN). This equation implies that the rate of inflation (π) increases if nominal wages rise faster than labor productivity.
A comparison of the last equation with the equation derived earlier, that is,
π = m - y + v,
points to two different explanations for increases in the inflation rate. First, the rate of inflation increases if nominal wages increase faster than labor productivity. Second, the rate of inflation increases if monetary growth increases faster than output growth adjusted for changes in velocity.
While neither of these two equations provides a sufficient explanation for short-run inflation, each is the basis of a different position in the fight against inflation. The first equation says that inflation can be contained if wage increases can be contained. This may be used to justify wage-price controls and perhaps a more gradual approach to fighting inflation. The second equation says that inflation can be contained if monetary growth can be contained, possibly justifying a cold turkey approach to reducing inflation.
Combining the two equations above can explain why the economy may enter a wage-price spiral: an increase in money growth shifts the AD-curve to the right. The economy eventually adjusts to the full-employment level of output but at a higher level of inflation. This leads to higher wage demands, shifting the AS-curve to the left. If the Fed expands money supply again to reduce the resulting unemployment, inflation increases even further. Labor will eventually realize that their initial wage increase has been negated by even higher inflation and will ask for yet another wage increase. This will shift the AS-curve to the left again, and so on.
Instructors should always point out that in the long run inflation is a monetary phenomenon, that is, it can only persist if money continues to grow at an excessive rate. On the other hand, it is also true that the economy will only adjust back to the full-employment output level at a desired inflation rate, if wage increases can be kept down. This implies that disinflation has to involve unemployment and leads us to a discussion of the concept of the sacrifice ratio.
In the discussion of the fight against inflation, the issue of credibility must also be addressed. It is very important for the central bank to have credibility. If the central bank does not show a true commitment to adhere to a pre-announced anti-inflation policy, it will encounter the problem of time inconsistency, mentioned in Chapter 17.Time inconsistency can occur when a policy that seemed optimal at the time it was announced no longer appears optimal when the time comes to carry it out. For example, the Fed can announce restrictive monetary policies to induce labor unions to agree to low wage increases in upcoming wage negotiations. If labor unions actually settle for low wage increases, the Fed may be tempted to seize the opportunity of locked-in low wages to create additional jobs by increasing monetary growth. The outcome is lower unemployment but a higher than expected rate of inflation and thus lower real wages for workers. If policy makers have not tended to follow their announced policies in the past, future
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policy announcements will suffer from time inconsistency. Labor unions will always anticipate faster monetary growth and demand higher wages, thus creating more inflation.
On the other hand, if a policy announcement is deemed credible, labor unions are more likely to adjust their inflationary expectations downwards, so the outcome may be low inflation and low unemployment, assuming that wages are fairly flexible. Some proponents of the rational expectations approach believe that if a policy is credible enough it may reduce inflation without causing a recession at all. Such an optimistic scenario is unlikely to occur, however, not only because credibility is hard to sustain, but also because existing labor contracts often embody past expectations and contract negotiations take time.
Some reference should be made to the material in Boxes 19-3 and 19-6 on monetarism and the rational expectations school. In the discussion of these boxes, four questions can be posed: ?Since inflation is basically a monetary phenomenon and credibility is important, does this imply that a monetary growth rule is better than discretionary policy?
?Why do monetarists and rational expectationalists agree that a monetary growth rule should be established but disagree on the short-run effects of such a policy?
?If we favor low unemployment over a rapid reduction of inflation, are wage-price controls the best way to fight inflation?
?Is it possible to reduce inflation and unemployment simultaneously?
These questions are sure to generate a lively classroom discussion, while at the same time providing a good opportunity to review different schools of macroeconomic thought.
The dilemma that irresponsible fiscal policy can create for the Fed is also worthy of discussion. If the government runs continued high budget deficits, the Fed has to decide whether it should monetize the increased debt. If the debt is not monetized, interest rates will increase, leading to the crowding out of private spending. Ultimately the Fed may be blamed for the lack of economic growth. But if the Fed decides to finance the debt to keep interest rates low, the inflation rate will increase and the Fed may again be blamed.
Financing an increase in government spending through the creation of high-powered money is an alternative to explicit taxation. The notion of inflation as a tax may initially seem strange to students, but the section on hyperinflation should have given them a better understanding of this concept. Figure 19-3 shows that there is a limit to how much additional tax revenue the government can gain through inflation. The inflation tax revenue is defined as the inflation rate times the real money base. During hyperinflation the real money base falls as it becomes too costly for people to hold currency or for banks to hold excess reserves.
Section 19-6 on budget deficits should be of great interest to students and will easily capture their attention. The debate over the rapidly increasing national debt in the U.S. in the 1980s and 1990s has improved the public’s awareness of the pro blems involved with deficit financing. In the early 1980s, the Fed refused to monetize the U.S. debt and interest rates were pushed to historically high levels. The high interest rates that resulted from a combination of expansionary fiscal and restrictive monetary policy attracted foreign funds, raising the value of the U.S. dollar. This led to a decrease in U.S. exports and an increase in foreign imports. The recovery following the 1982 recession came at great cost to the U.S. manufacturing sector, since many U.S. firms had lost the ability to compete successfully in world markets and subsequently suffered greatly from increased consumer spending on foreign goods.
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To show the effects that large government budget deficits can have on the economy, instructors may want to recall an equation derived in Chapter 2, that is,
S - I = - (TA - G - TR) - (- NX) ==> S - I = BD - TD.
This equation states that the difference between private domestic saving (S) and private domestic investment (I) is equal to the difference between the government budget deficit (BD) and the trade deficit (TD). Increases in the budget deficit that cannot be financed by increases in private domestic saving will negatively affect the level of private domestic investment and/or net exports and therefore negatively affect future living standards.
At this point, instructors may also want to reiterate the fact that government deficits can either be debt financed or money financed. A government engages in debt financing if it finances a deficit by selling government securities to the public. It engages in money financing if it borrows funds from the central bank. In the U.S., the Treasury cannot borrow large sums directly from the Fed. But since the increase in the government's demand for credit may exert upward pressure on short-term interest rates, the Fed may decide to conduct open market purchases to avoid increases in interest rates. If the Fed buys government securities from the public, high-powered money is increased and the Fed, in effect, finances part of the deficit (the Fed monetizes the debt). Thus, in the U.S., the Fed—not the government—decides how much of the deficit is money financed. Unless the Fed follows a policy of targeting interest rates, there is no direct link between Treasury borrowing and an increase in high-powered money.
It should also be clear that budget deficits are not necessarily bad and are often needed to stimulate the economy out of a recession. Similarly, deficit reduction can often cause the economy to slow down as aggregate spending is reduced. So why did the U.S. economy grow so rapidly in the 1990s, a time when budget deficits shrank and eventually turned into surpluses? One explanation is that decreased public spending freed up funds, leading to increased private spending via lower interest rates. Another may be that the stock market bubble made people feel wealthier and therefore increased consumption.
Many students are not aware that for several years when the U.S. government experienced budget deficits, its tax revenues actually exceeded its spending—except for the interest payments on the national debt. In other words, the primary deficit, which is defined as total deficit minus interest payments on the national debt, was negative, that is, there was actually a surplus (see Figure 19-4). The high interest payments on the national debt are the legacy of the high deficits in the 1980s and early 1990s. A simple numerical example can highlight the importance of these interest payments. If the national debt is roughly $9 trillion (or $9,000 billion) and the government has to pay an average of 4% in interest on the debt, interest payments on the debt are $360 billion. A reduction in interest rates by the Fed to 3% or 2% will bring about a reduction in these annual interest payments to only about $270 billion or $180 billion, respectively. The Fed’s policy of keeping interest rates fairly low throughout much the 1990s greatly helped in the effort to eliminate budget deficits.
There is great confusion about whether a large national debt imposes a burden on the economy. Instructors should stress the following points:
?Increased borrowing by the government may raise interest rates, potentially crowding out private domestic investment and net exports. The rate of capital accumulation may decline
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and domestic jobs and part of the manufacturing base may be lost. This will lead to lower future economic growth and a decrease in the living standard for future generations. ?Foreigners hold part of the debt. This is a net debt to U.S. residents, since taxes will have to be increased if these foreigners demand back their principal plus interest. This creates a burden on future taxpayers. On the other hand, only a redistribution of income away from tax payers and towards government bond holders will result when the part that is owed to U.S. citizens is repaid via taxation.
?The Fed may be forced to finance the debt by increasing money supply. This will create inflationary pressure. In the worst-case scenario, when budget deficits get totally out of control, hyperinflation may follow.
?If taxes have to be raised to pay back part of the government debt, disincentives to work, save, and invest may be created, reducing the level of output.
Students are always astonished to hear that it took the U.S. about 200 years to accumulate a national debt of about $1 trillion, but it took only three decades, that is from 1976 to 2006 to add over $7trillion to it, with the biggest additions occurring in the 1980s and the early part of the 1990s. Federal budget deficits began to decline in size in the 1990s and, from 1998-2001, the U.S. government actually ran budget surpluses. At that time, estimates indicated that the national debt could be paid off within the next two decades, leading to questions about whether it would make sense to reduce the debt to zero and what the implications of doing so would be for the Fed’s open market operations. These were interesting questions but they became moot as budget surpluses quickly turned into deficits again, which reached a record high of $412 billion in 2004. Therefore it should be mentioned that long-term economic forecasts are not necessarily reliable and politicians with extra funds at their disposal are eager to either cut taxes or find ways to increase spending.
Instructors should also point out that it is not the actual size of the deficit or national debt that matters, but the deficit or debt in proportion to GDP. The importance of the debt-income ratio (the national debt divided by GDP) should be stressed. If national income grows faster than the national debt, the debt-income ratio will decline and budget deficits may not be a significant problem. But if the debt-income ratio rises, the debt problem will eventually become an inflation problem unless some fiscal policy action is taken.
Students should be asked to look for data that can be used to compare not only the debt-income ratio but also the size of the external debt of the U.S. to those of countries such as Brazil, Mexico, Argentina, and Bolivia. By mentioning the sacrifices that the people in these countries had to face to complete their fiscal austerity programs, instructors can emphasize the need for deficit reduction before the situation gets out of hand. In comparison to these countries, the U.S. has fared very well in getting its budget under control. However, we should not forget that the government almost had to shut down its operation during the Clinton administration, when a Republican controlled Congress and a Democratic administration could not agree on how to reduce the budget deficit.
Students should know the difference between the gross national debt and the net national debt. Of the $8.7 trillion in the U.S. gross national debt in December of 2006, the net national debt was only about $4.1 trillion, as different government agencies (including the Fed) held
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about $4.6 trillion, while the domestic public held $2.0 trillion and foreigners held about $2.1 trillion.
When discussing different components of the federal budget, students are often astonished to learn that defense spending as a fraction of GDP has declined over the last four decades, while the share devoted to entitlement programs has increased significantly (see Table 19-8). On the revenue side, it should be pointed out that past cuts in the individual income tax rate have not led to a reduction in tax revenues, since tax loopholes were closed at the same time. Social insurance contributions, on the other hand, have increased significantly over the last four decades. Students also may be astonished to learn that a significant portion of the benefits of entitlement programs go to families with annual incomes above $30,000.
One entitlement program that deserves particular attention is Social Security. Many students, when asked, will admit that they do not expect to rely on the Social Security system for their own retirement. They believe that the system will either be abolished or changed significantly by the time they reach retirement age. In either case, they believe that they will not be able to afford an adequate living standard after retirement unless they have significant private savings.
While it is impossible to predict the future, current demographic trends seem to point toward a financial crisis in Social Security unless the system is overhauled. The latest projection is that the system will be bankrupt not too long after the year 2040. In the debate over Social Security reform, provisions have been suggested to address not only the insolvency problem but also the inefficiency aspects of the system. There is empirical evidence that because of its pay-as-you-go financing, the Social Security system has significantly reduced national saving and the rate of capital accumulation. Some instructors may want to explain this savings replacement effect in more detail, but it is more important to remember that several other effects, including the goal feasibility effect, the induced retirement effect, and the bequest effect mitigate the negative impact on saving.
Students are probably less interested in discussing these theoretical aspects and would rather concentrate on debating what can be done to reform the system. The need to maintain Social Security as it exists can be defended with the argument that the government should provide some sort of safety net for the elderly. Some people may not have the foresight to save enough for retirement or may not be able to do so because of financial constraints during their working years. They also may misjudge their life expectancy. Therefore there always will be some elderly in need of government support. The Social Security system, in a way, forces people to save for retirement. In addition, because of cost-of-living adjustments, Social Security benefit payments are protected against inflation.
However, many people believe that Social Security is in need of reform and the following changes have been suggested:
?Increase the retirement age and abolish the earnings test.
?Impose eligibility requirements that take into account earnings from assets.
?Increase incentives for private saving to supplement retirement saving.
?Build up the Social Security trust fund by increasing payroll taxes without an equivalent increase in benefits.
?Privatize the Social Security system (either totally or partially) and allow funds to be invested in the stock market.
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Privatizing Social Security is a proposal that is often favored by free market economists. However, it concerns others who do not believe that people are able or willing to save enough on their own to guarantee that they can finance an adequate consumption stream over their retirement years. The main rationale for privatizing Social Security is that the stock market has outperformed the bond market over long time periods. This proposition, however, has great risks, since the stock market can undergo large market swings. A large and lengthy downturn could severely endanger the financial future of retirees. People became painfully aware of this fact after the sharp and prolonged decline in stock values that began in March, 2000. All these issues will definitely pique students’ interest and will allow for very lively classroom discussions. Additional Readings
Aaron, H. and Reischauer, R. “Should We Retire Social Security? Grading the Reform Plans,”
The Brookings Review, Winter, 1999.
Alesina, Alberto, “The Political Economy of the Budget Surplus in the United States,” Journal of Economic Perspectives, Summer, 2000.
Auerbach, Alan, “Formation of Fiscal Policy: The Experience of the Past Twenty-Five Years,”
Economic Policy Review, FRB of New York, April, 2000.
Auerbach, Alan, “On the Performance and Use of Government Revenue Forecasts,” National Tax Journal, December, 1999.
Ball, Laurence, “How Costly is Disinflation? The Historical Evidence,” Business Review, FRB of Philadelphia, November/December, 1993.
Barro, Robert, “A re Government Bonds Net Wealth?”Journal of Political Economy, December, 1974.
Bernanke, Ben, “Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,”American Economic Review, June, 1983
Bohn, Henning, “The Behavior of U.S. Public Debt and Deficits,” Quarterly Journal of Economics, August, 1998.
Cagan, Phillip, “The Monet ary Dynamics of Hyperinflation,” in Milton Friedman (ed.), Studies in the Quantity Theory of Money, University of Chicago Press, Chicago, 1956.
Calmes, Jackie “On Social Security, It’s Bush vs. AARP,” The Wall Street Journal, January 21, 2005.
Dewald, William, “Historical U.S. Money Growth, Inflation, and Inflation Credibility,” Review, FRB of St. Louis, November/December, 1998.
Diamond, Peter, “Social Security,” American Economic Review, March, 2004.
Dornbusch, Rudiger, “Extreme Inflation: Dynamics and Stabilization,”Brookings Papers on Economics Activity, 1990.
Dornbusch R., and Fischer, S., “Stopping Hyperinflations, Past and Present,”
Weltwirtschaftliches Archiv, April,1986.
Dwyer, G. and Hafer, R., “Are Money Growth and Inflation Still Related?” Economic Review, FRB of Atlanta, Second Quarter, 1999.
The Economist, “Hyperinflation in Zimbabwe: Bags of Bricks,” August 24, 2006.
The Economist, “Could It Happen Again?” February 20, 1999.
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Eichengreen, Barry, “The Origins and N ature of the Great Slump Revisit ed,”Economic History Review, May, 1992
Eisner, Robert, “Black Holes in the Statistics,” Challenge, January/February, 1997.
Eisner, Robert, “Sense and Nonsense About Budget Deficits,” Harvard Business Review, May/June, 1993.
Elmendorf, D. and Sheiner, L., “Should America Save for its Old Age? Fiscal Policy, Population, and National S aving,” Journal of Economic Perspectives, Summer, 2000.
Espinoza-Vega, M. and Russel, S., “Fully Funded Social Security; Now You See it, Now You Don’t,”Economic Review, FRB of Atlanta, Fourth Quarter, 1999.
Fischer, Stanley, “Seigniorage and the Case for National Money,” Journal of Political Economy, April, 1982.
Friedman, M. and Schwartz, A., The Great Contraction, Princeton University Press, Princeton, New Jersey, 1965.
Friedman, Benjamin, “What Have We Learned from the Disappearance of the Deficits,”
Challenge, July/August, 2000.
Friedman, Milton, “The Role of Monetary Policy,”American Economic Review, March, 1968. Garner, Alan, “Social Security Privatization: Balancing Efficiency and Fairness,” Economic Review, FRB of Kansas City, Third Quarter, 1997.
Gordon, R. and Wilcox, A., “Monetarist Interpretations of the Great Depression: An Evaluation and Critique,” in Karl Brunner, ed., Contemporary Views of the Great Depression, Martinus Nijhoff, 1981, Hingham, MA, 1981.
Gramlich, Edward, “Mending But Not Ending Social Security: The Individual Accounts Plan,”
Review, FRB of St. Louis, March/April, 1998.
Gramlich, Edward, “Different Approaches for Dealing with Social Security,” Journal of Economic Perspectives, Summer, 1996.
Keynes, John Maynard, The General Theory of Employment, Interest and Money, Macmillan, New York, 1936.
Kindleberger, Charles, The World in Depression, 1929-1939, University of California Press, Berkeley, 1986.
Kotlikoff, Laurance, “Privatizing U.S. Social Security: Some Possible Ef fects on Intergenerational Equity and the Economy,” Review, FRB of St. Louis, March/April, 1998. Kotlikoff, Laurance, “Privatizing Social Security at Home and Abroad,” American Economic Association Papers and Proceedings, May, 1996.
Kuegel, M. and Neume yer, P., “Seigniorage and Inflation: The Case of Argentina,” Journal of Money, Credit, and Banking, August, 1995.
Mitchell, O. and Zeldes, S., “Social Security Privatization: A Structural Analysis,” American Economic Association Papers and Proceedings, May, 1996.
Moreno, Ramon, “Learning from Argentina’s Crisis,” Economics Letter, FRB of San Francisco, October 18, 2002.
Murphy, K. and Welch, F., “Perspectives on the Social Security Crisis and Proposed Solutions,”
American Economic Review, May, 1998.
No rdhaus, William, “Budget Deficit and National Saving,” Challenge, March/April, 1996. Pecchenino, R. and Pollard, P., “Reforming Social Security: A Welfare Analysis,” Review, FRB of St. Louis, March/April, 1998.
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Quinn, J. and Mitchell, O., “Social Security on the Table,” The American Prospect, May/June, 1996.
Romer, Christina, “The Nation in Depression?” The Journal of Economic Perspectives, Spring, 1993
Romer, Christina, “What Ended the Great Depression?” Journal of Economic History, December, 1992.
Sach s, Jeffrey, “The Bolivian Hy perinflation and Stabilization,”American Economic Review, May, 1987.
Sargent, Thomas, “T he Ends of Four Big Inflations,” in Robert E. Hall (ed.), Inflation: Causes and Effects, University of Chicago Press, Chicago, 1982.
Schick, Allen, “The Deficit that Didn’t Just Happen,” The Brookings Review, Spring, 2002. Shiffer, Zalman, “Adjusting to High Inf lation: The Israeli Experience,”Review, FRB of St. Louis, May, 1986.
Sutch, Richard, “Has Social Spending Grown Out of Control,” Challenge, May/June, 1996. Temin, Peter, Lessons from the Great Depression, MIT Press, Cambridge, Mass., 1990. Thornton, Daniel L., “Monetizing the Debt,” Review, FRB of St. Louis, December, 1984. Wicker, Elmus, “Terminating Hyperinflation in the Dismembered Habsburg Monarchy,”
American Economic Review, June, 1986.
Learning Objectives
?Students should be aware of the magnitude of the Great Depression and of the institutional changes that were implemented in response to it.
?Students should be able to compare the Keynesian and monetarist explanations of the Great Depression. They should also understand that the two explanations are not necessarily in conflict with one another.
?Students should know approaches to macroeconomics advanced by the monetarists and the rational expectationalists.
?Students should know that there is a link between the growth rate of money supply and the inflation rate, but that this link is not precise, since changes in the growth rate of output and the income velocity of money also influence the rate of inflation.
?Students should know that countries that suffer from hyperinflation also tend to suffer from large budget deficits and rapid monetary growth.
?Students should be able to discuss measures for stopping hyperinflation and the costs associated with these measures.
?Students should understand the importance of credibility to policy makers in their fight against inflation.
?Students should be familiar with the concepts of seigniorage and the inflation tax. ?Students should be able to discuss the consequences of irresponsible fiscal policy on the Fed’s conduct of monetary policy.
?Students should be familiar with the major components of federal revenues and outlays and should be able to distinguish between mandatory and discretionary budget changes.
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?Students should be familiar with U.S. federal budgetary trends and should understand the relationship between private domestic saving, private domestic investment, the budget deficit, and the external balance.
?Students should know the importance of the debt-income ratio and be able to explain the real burden of a large national debt.
?Students should understand how Social Security is financed and how the system affects national saving.
?Students should be familiar with various reform proposals for the Social Security system.
Solutions to the Problems in the Textbook
Conceptual Problems
1.a.The Keynesian explanation for the cause of the Great Depression concentrates on the decline
in investment spending and the reduction in consumption. The decrease in aggregate demand was reinforced by restrictive fiscal policy as the government tried to balance the budget.
1.b. The monetarist explanation for the cause of the Great Depression concentrates on the decline
in money supply. The Fed failed to prevent a large number of bank failures, so consumers lost confidence in the banking system. This led to an enormous increase in the currency-deposit ratio, causing a decrease in the money multiplier. The resulting drastic decline in money supply led to the economic downturn.
1.c.Both explanations given above fit the facts and there is no inherent conflict between them; in
fact, they complement one another. The combination of inept fiscal and monetary policy may have turned what could have been an average recession into a major depression.
1.d. The Great Depression is one of the most drastic economic events in recent history and any
theory that can adequately explain its causes or find remedies to prevent similar occurrences in the future will attract attention. Some economists argue that the Great Depression proves that the economy is inherently unstable and requires a long time to adjust back to full-employment equilibrium. Others argue that it proves that government policy is often misguided and that it is better to rely on market forces to bring us back to an equilibrium. 2.In the long run, no major inflation can persist without rapid money growth, since the inflation
rate is equal to the growth rate of money supply adjusted for the trend in real output and changes in velocity. In the short run, however, changes in output growth and velocity are quite unpredictable and affect the inflation rate. Such short-run fluctuations can be caused by supply shocks or policy changes.
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3.a.The key question for governments desiring to reduce inflation is how cheaply (in terms of
lost output) they want to achieve a desired inflation rate. A gradual strategy attempts a slow and steady return to a low inflation rate by reducing monetary growth slowly in an attempt to avoid a significant increase in unemployment. This approach takes a lot longer than the cold-turkey approach which attempts to reduce inflation more quickly by immediately and sharply reducing monetary growth. While inflation and inflationary expectations will be reduced faster under the cold-turkey approach, a higher level of unemployment leading to a decrease in the level of output will result in the short run until the economy has time to adjust back to the full-employment level of output. Which strategy policy decision-makers will choose mostly depends on how fast wages and prices are believed to adjust to their equilibrium level.
3.b.Establishing credibility is very important for a central bank in its conduct of monetary policy.
If a central bank lacks credibility, inflationary expectations will not adjust downwards quickly and it will take a whole lot longer (and probably a much higher increase in the unemployment rate) to reduce inflation. If the central bank chooses a gradual approach, people will be reluctant to change their inflationary expectations, since they may not be convinced that the central bank will actually stick to its announced policy objective of reducing inflation. A cold-turkey approach may be more attractive since it has a credibility bonus, that is, there is an immediate confirmation that the central bank is committed to reducing the inflation rate. Therefore a new full-employment equilibrium can be reached more quickly.
4.People often worry about budget deficits, relating them to their own financial situations and
inferring that nobody, not even the government, can live on borrowed money for a long time period. The real issues surrounding budget deficits, however, are much more complicated, and most people do not fully comprehend how large budget deficits actually affect the whole economy or their daily lives.
Budget deficits caused by expansionary fiscal policy stimulate the economy in the short run. However, the increased need of the government to borrow may drive up interest rates and crowd out private spending, especially investment and net exports. A lower rate of capital accumulation implies less future economic growth and therefore lower living standards. Part of the budget deficit may have been financed from abroad, so foreigners will have to be repaid with interest and this diminishes domestic living standards. Finally, if the central bank is worried about higher interest rates and decides to monetize the debt, a higher rate of inflation results. To avoid inflation, continued high budget deficits eventually require higher taxes or budget-cutting measures to counteract the increased high interest payments on the debt.
As long as the national debt grows more slowly than GDP, financing the national debt does not create a major problem. But if the debt-income ratio increases, the financing of further budget deficits creates difficulties. Therefore people should worry less about the size of the deficit or the debt and more about the debt-income ratio, the way in which government deficits are financed, and the possibility of lower future economic growth due to a lower rate of capital accumulation.
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5.The further the economy is from the full-employment level of output, the more the Fed
should be willing to monetize the deficit. For one, at a time when unemployment is high, inflationary pressure is probably low, so increasing money supply will not cause rapid price increases. Secondly, a small increase in inflation may be tolerable since a high level of unemployment is costly in terms of lost output. Therefore it may be desirable to return to full employment quickly by increasing money supply. However, when the economy is close to full employment, bottlenecks develop more easily. In this situation, monetizing the deficit will ultimately fail to keep interest rates down or stimulate the economy further. Instead a higher rate of monetary growth will cause inflation to increase sharply, without much increase in real output.
6.The ability of the government to raise additional tax revenue through the creation of money
(and therefore inflation) is called seigniorage. Inflation acts just like a tax since the government is able to spend more by printing money while people are forced to spend less since part of their income is used to increase their nominal money holdings. The amount of revenue that the government can gain through the inflation tax is defined as the product of the inflation rate times the real money base.
7.a.During the hyperinflation of 1922-23, the German government financed almost all of its
spending through the creation of money. The excessive monetary expansion caused inflation to skyrocket, reaching an average monthly inflation rate of 322 percent.
7.b.The revenue that the government can gain through the inflation tax is defined as:
inflation tax revenue = (inflation rate)*(real money base).
Figure 19-3 shows that it is possible for the government to increase the inflation tax revenue temporarily as long as money is printed faster than people expect. But excessive monetary growth causes inflation to increase rapidly and people will start to reduce their money holdings in an attempt to avoid the inflation tax. Eventually, the monetary base will decline, and the whole process will break down.
At the end of a hyperinflation, nominal interest rates tend to decline and thus the demand for money balances increases. In this situation, the government is able to increase money supply without creating more inflation—at least for a short while.
8.Russia was burdened with a huge budget deficit and a large external debt as it tried to
transform its centrally planned economy to a free market economy. Real output decreased substantially as much of the economic activity occurred on the black market, so collecting tax revenues was difficult. With government spending far outpacing tax revenues, the government budget got totally out of balance and hyperinflation resulted as the central bank
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created money to allow for more government spending. Inflation peaked at 2,600% in 1993.
The ruble totally collapsed in value and the Russian economy became burdened with a huge foreign debt that it was unable to service. In this situation, subsidies to loss-making state enterprises had to be cut and tax collections had to be strictly enforced in order to bring the budget back into balance. To bring inflation under control, Russia introduced a new line of ruble notes in January, 1998. The old 1,000-ruble bills were replaced with new one-ruble notes in an effort to curtail money growth.
9.a.Interest payments on the national debt can be divided into real payments and payments due to
inflation. In other words, we have to distinguish between real and nominal interest rates.
During periods of inflation most interest payments are offset by the decrease in the real value of the debt. What we should be concerned about, however, are the interest payments in real terms.
9.b.The national debt is a burden on society primarily because of the negative effect it has on the
rate of capital accumulation. The increased borrowing needs of the government drive up real interest rates, which then crowd out private spending, especially investment. As a result, future economic growth may be impaired, leading to lower living standards. High interest rates may also crowd out net exports, which may lead to a loss of competitiveness and a decline of output in the manufacturing sector. In addition, the part of the debt that is held by foreigners will have to be repaid with interest, creating a tax burden on future generations.
The part of the debt that is financed domestically does not create the same burden, since future tax increases will be used to pay U.S. citizens holding government securities. It will, however, have redistributive effects, away from mostly lower- and middle-income taxpayers to mostly high-income bondholders.
10.If an amendment to require an annually balanced budget were implemented, the government
would no longer be able to use discretionary fiscal policy as a stabilization tool. In addition, efforts to annually balance the budget could do more harm than good.
Assume that output is at the full employment level and the budget is balanced. If the economy enters a recession, the cyclical component of the budget surplus will become negative and an actual budget deficit will develop. To balance the budget, the government can either increase taxes or decrease spending to create a surplus in the structural component.
This fiscal restriction will cause a deeper recession, increasing the cyclical deficit even more.
It is doubtful that the government would actually succeed in balancing the budget. For this reason most economists do not favor an amendment to balance the budget annually.
11. It is more important to look at the debt-income ratio than at the absolute value of the national
debt, since the debt-income ratio tells us how much of our current income we would have to give up to pay back the debt. Obviously a national debt of $9 trillion is much harder to deal with in an economy with a GDP of $5 trillion than in an economy with a GDP of $10 trillion.
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宏观经济学 第二章概念题 1．如果政府雇用失业工人，他们曾领取TR美元的失业救济金，现在他们作为政府雇员支取TR美元，不做任何工作，GDP会发生什么情况？请解释。 答：国内生产总值指一个国家（地区）领土范围，本国（地区）居民和外国居民在一定时期内所生产和提供的最终使用的产品和劳务的价值。用支出法计算的国内生产总值等于消费C、投资I、政府支出G和净出口NX之和。从支出法核算角度看：C、I、NX保持不变，由于转移支付TR美元变成了政府对劳务的购买即政府支出增加，使得G增加了TR美元，GDP会由于G的增加而增加。 2．GDP和GNP有什么区别？用于计算收入/产量是否一个比另一个更好呢？为什么？ 答：（1）GNP和GDP的区别 GNP指在一定时期内一国或地区的国民所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是本国国民生产的最终产品市场价值的总和，是一个国民概念，即无论劳动力和其他生产要素处于国内还是国外，只要本国国民生产的产品和劳务的价值都记入国民生产总值。 GDP指一定时期内一国或地区所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是一国范围内生产的最终产品，是一个地域概念。 两者的区别：在经济封闭的国家或地区，国民生产总值等于国内生产总值；在经济开放的国家或地区，国民生产总值等于国内生产总值加上国外净要素收入。两者的关系可以表示为：GNP=GDP+[本国生产要素在其他国家获得的收入（投资利润、劳务收入）-外国生产要素从本国获得的收入]。 （2）使用GDP比使用GNP用于计量产出会更好一些，原因如下： 1）从精确度角度看，GDP的精确度高； 2）GDP衡量综合国力时，比GNP好； 3）相对于GNP而言，GDP是对经济中就业潜力的一个较好的衡量指标。 由于美国经济中GDP和GNP的差异非常小，所以在分析美国经济时，使用这两种的任何一个指标，造成的差异都不会大。但对于其他有些国家的经济来说明，这个差别是相当大的，因此，使用GDP作为衡量指标会更好。但是，在衡量某地区居民生活水平时GNP更好一点。 3．CPI和PPI都计量价格水平，它们有什么区别，什么时候你会选择其中一个，而不选择另一个？ 答：（1）CPI与PPI的区别 消费者价格指数（CPI），是反映消费品（包括劳务）价格水平变动状况的一种价格指数，代表城市消费者购买一篮子固定的商品和服务的费用。生产者价格指数（PPI）指建立在生产中所使用的商品的市场篮子基础上的价格指数，计量既定的一篮子商品的成本。 PPI与CPI的区别在于：1）他们所包括的范围不同：CPI主要包括日用消费品；PPI包括原料和半成品。2）PPI被设计为对销售过程中开始阶段的价格的度量，而CPI衡量的是城市居民实际支付的价格——也即零售价格。
多恩布什《宏观经济学》第10版课后习题详解 第16章联邦储备、货币与信用 一、概念题 1．信用（credit） 答：信用指未来偿还商品赊销或商品借贷的一种承诺，是关于债权债务关系的约定。它以商品货币的使用权为交易标的，以还本付息为条件，以信任为基础，以利益最大化为目标，是价值运动的特殊形式。 信用主要有银行信用、商业信用、消费信用和国家信用四种形式。银行信用是指有银行参与的货币借贷活动；商业信用是指商品交易中的延期付款或交货；消费信用指由企业、银行或其他消费信用机构向消费者个人提供的信用；国家信用是指政府以债务人的身份筹集资金的一种借贷行为。 2．外汇市场干预（foreign exchange intervention） 答：外汇市场干预指中央银行买卖外汇以稳定汇率的行为。各国中央银行经常对外汇市场进行干预，影响外汇市场供求状况，使得汇率朝有利于本国的方向波动。外汇市场干预会影响基础货币，通过货币乘数影响货币供应量。当中央银行购买黄金或外汇，会使基础货币供应量增加，使货币供应量数倍增加；反之会使货币供应量减少。外汇市场干预使货币供应量变动，会对本国经济产生不利影响，因此一般情况下，一国中央银行在进行外汇市场干预时，会同时在国内货币市场采取反向的操作，使得货币供应量保持不变。 3．公开市场购买（open market purchase） 答：公开市场购买指中央银行在公开市场上买进有价证券或外汇。公开市场购买将产生
三方面的效果： （1）基础货币投放量增加，当货币乘数不变时，货币供应量将增加。美联储在公开市场购买有价证券或外汇时，以自身的负债进行支付，从而创造了高能货币，在货币乘数的影响下造成货币供应量的成倍增加，引起信用扩张。 （2）有价证券和票据的价格上升，市场利率下降，刺激投资增加。 （3）向公众传达放松银根的信息，影响心理预期。 4．信用配给（credit rationing） 答：信用配给指在借贷人愿意支付规定利率甚至更高利率时，贷款人仍不愿发放贷款或发放贷款的数额小于申请贷款额的情形。信用配给有两种情况：一种是银行拒绝发放任何数额的贷款，哪怕借款人愿意支付较高的利率；另一种是银行愿意发放贷款，但数额低于借款人的要求。 信用配额出现的原因是信贷中的逆向选择和道德风险问题。一般愿意支付高利率的借款人，投资项目的风险也相应高，银行不愿意发放此类贷款是因为投资风险太大，如果投资失败，贷款就难以偿还，银行宁愿不发放任何高利率贷款而进行信用配给；信用配给的第二个原因是为了防范道德风险，因为贷款规模越大，借款人从事那些难以归还贷款的活动的动力就越大，因此银行会进行信用配给，向借款人提供的资金少于申请额。 5．钉住利率（pegging the interest rate） 答：钉住利率是将利率设定在某个给定的水平，并通过运用货币政策工具使之保持不变的政策。钉住利率制要求美联储必须时刻维持一定的利率水平，并将其作为货币政策的中介目标，这有利于运用利率杠杆调节经济，但同时使得美联储失去了对货币供给的控制。美联
CHAPTER 4 GROWTH AND POLICY Solutions to the Problems in the Textbook Conceptual Problems: 1. Endogenous or self-sustained growth supposedly can be achieved by policies that affect a nation's savings rate and therefore the proportion of GDP that goes towards investment. The neoclassical growth model of Chapter 3 predicted that long-term growth can only be achieved through technological progress and that changes in the savings rate have only transitory effects. The endogenous growth model, however, predicts that countries with a higher savings rate can achieve higher long-term growth and that a nation's government can affect the long-term growth rate by implementing policies that affect the savings rate. 2. A simple model with constant returns to scale to capital alone implies increasing returns to scale to all factors taken together, which could cause a single large firm to dominate the economy. However, such a model ignores the possibility that external returns to capital exist, in addition to the internal (private) returns. In other words, more investment not only leads to a higher and more efficient capital stock but also to new ideas and new ways of doing things, which can then be copied by others. Therefore, a single firm does not necessarily reap all of the benefits of increased output. 3.In the neoclassical growth model, an increase in the savings rate does not increase the long-term growth rate of output. However, because of the short-run adjustment process, there is some transitional gain that will lead to a higher level of output per capita. In the endogenous growth model, however, the savings rate does affect the long-term growth rate of output. 4.a. Chapter 4 suggests that the key to long-term economic growth is investment in human and physical capital with particular emphasis on research and development. 4.b. (i) Investment tax credits may potentially affect economic growth in the long run by achieving a higher rate of technological progress. (ii) R&D subsidies and grants lead to technological advances that will have private and social returns. They are very effective in stimulating long-term economic growth. (iii) According to the endogenous growth model, policies designed to increase the savings rate will increase the long-term growth rate of output. However, empirical evidence does not lend much support to that notion. (iv) Increased funding for primary education has large private and social returns and
宏观经济学习题集 第一章正名 本章重点： 1)经济学的规范性和实证性定义的内涵与外延。 2)凯恩斯主义（及新凯恩斯主义）与古典（及新古典）经济学的区别与联系。 本章难点： 1)微观经济学均衡与宏观经济学均衡的区别及简单的动态经济学基础。 2)经济体制和经济人行为的相互关系。 一、判断题 1.“经济学研究如何有效配置稀缺资源”这种定义将经济学纳入规范科学领域。 2.“宏观经济学是研究宏观经济变量是如何决定的。”这种定义是将宏观经济学作为一门 实证科学。 3.在新古典学派看来资本主义市场经济是不完全竞争型市场经济。 4.由于凯恩斯的宏观经济政策在面对20世纪30年代西方资本主义社会经济危机时表现出 的无能，使得人们开始对传统的凯恩斯理论重新进行审视。 5.在宏观经济学研究中，当经济处于均衡时，供给等于需求。 6.因为企业所有制（产权制度）制约企业制度的设计，所以一种企业所有制，只能对应一 种企业制度。 7.在任何经济环境下，宏观经济变量的决定必然是经济人行为的综合结果。 8.在动态系统中，如果存在不动点，那么其只能收敛于一点，即只有一个不动点。 二、选择题 1.经济学中的规范含义是什么 A. 是指经济学的研究要符合规范要求、不能随心所意 B. 是指经济学研究的目的在于解释经济现象，回答为什么等客观性问题 C. 是指经济学的研究目的在于回答“好与不好”等价值判断的问题 D. 是指经济学研究能够对各种经济现象给出规范性的解释
2.经济学中的实证含义是什么？ A. 实证顾名思义就是指经济学的理论要能够指导实践 B. 实际上实证的前提是要符合规范的要求 C. 经济学研究的目的在于能够回答“应不应该”或“好还是坏”等问题，并能得到来自实践的支持，就是实证 D. 通俗地讲，就是回答经济现象是什么？为什么？ 3.经济学的规范和实证的关系正确理解是 A. 规范和实证是彼此对立的，因而经济学要么是规范的，要么就是实证的 B. 因为经济学是社会学科，因而本质上经济学始终是规范的 C. 规范以实证为基础，实证以规范为目的，因为经济学的目的是造福于人类 D. 两者就是一回事，不过是一枚硬币的两面 4.以下那个判断属于实证经济学？ A. 通货膨胀率下降了 B. 失业率太高了 C. 经理人的工资不应该太高 D. 降低失业率比抑制通货膨胀率更重要 5.下列哪种表述属于实证表述 A. 政府应该降低税收刺激经济以防经济恶化 B. 减少货币供给将降低通货膨胀率 C. 央行应该降低货币供给 D. 社会应该要求福利领取者去找工作 6.以下各项中不属于宏观经济学中探讨的经济变量是： A、就业率 B、国民生产总值 C、通货膨胀率
1、定义：在一定时期一国经济中所生产的全部最终产品和劳务价值。 1)“一定时期”，流量概念，不包括已有商品的交易。例如：新的房屋建筑计算为GDP 的一部分，不包括已经存在的房屋的交易。不过，销售现有房屋的房产经纪人费用作为本期劳务应计算为GDP的一部分。 2)“一国经济中”是指地域范围。 3)“生产的”，以生产而非交易为标准 4)“最终产品和劳务”，不包括中间品，避免重复计算。隐含着GDP本质上指的是一国 在一年时间里各种要素（劳动、资本、土地等）共同劳作而创造的新增的社会财富价值的总和。 5)“价值”，以市场价格而不是以要素的成本来衡量，包含物价因素。一般以当期价格计 算的为名义GDP，以一个基期价格来衡量的为实际GDP 2、核算：支出法——Y=C+I+G+NX 收入法——Y=工资+利润+利息+租金+间接税+折旧 3、计量GDP中存在的若干问题 1)计量不够充分，存在地下交易； 2)一些产品定价有问题； 3)现有GDP计量中引起资源消耗的成本并没有扣除掉，造成GDP虚夸现象； 4)产品异质性难以度量； 1、定义：在一定时期本国的生产要素所有者所生产的最终产品和劳务的价值总和。 GDP-GNP =外国人在本国的收入-本国人在外国的收入= 外国人所获净收入 2、名义GNP——在一定时期的以该期价格计算的产出价值。 实际GNP——以相同的价格（基期价格）来衡量的各个时期所生产的所有产品的价值。 目的是便于各个不同时期经济中的物质产量的相互比较。 1、一定的支出增量带来的产出增量与自身之比，一般产出增量大于支出增量 2、凯恩斯乘数效应理论旨在说明政府政策对于纠正市场失灵的有效性 3、但只有当经济社会存在着闲置资源时，乘数才能发挥作用。相反，如果已经处于充分就业状态，社会资源已经没有闲置的时候，乘数效应对总产出不能发挥作用，如果一味推行，可能导致一些负面效果出现，如通货膨胀问题。比较“1929-1933大萧条时期罗斯福新政的出台对经济的效果”与“长期推行凯恩斯主义在70年代产生的滞胀问题”。 G和增加税收t结合在一起以保持BS不变,将使产出的增加刚好等于政府支出的增加。此时，平衡预算乘数为1 1、一般认为节俭更能增加财富，但在宏观经济波动理论中，消费对产出有乘数的放大作用。如果国民越是节俭，则边际消费倾向越低，均衡产出水平就越低，国民越是贫穷（作图说明）。这种与传统观点相反的情况就叫做节俭悖论 2、节俭悖论在长期的增长模型中不复存在，罗默的内生增长模型表明，储蓄率较高的国家增长较快，巴罗虽然认为高储蓄对增长的影响倾向于暂时性的，但也承认高储蓄率的国家能
第10章收入与支出 一、概念题 1．总需求（aggregate demand） 答：总需求指整个经济社会在每一个价格水平下对产品和劳务的需求总量，它由消费需求、投资需求、政府购买支出和国外需求构成。总需求函数表示产品市场和货币市场同时达到均衡时的价格水平与国民收入间的依存关系，描述这一函数的曲线称为总需求曲线。 总需求曲线向下倾斜，其机制在于：当价格水平上升时，将会同时打破产品市场和货币市场的均衡。在货币市场上，价格水平上升导致实际货币供给下降，从而使曲线向左移动，均衡利率水平上升，国民收入水平下降。在产品市场上，一方面由于利率水平上升造成投资需求下降（即利率效应），总需求随之下降；另一方面，价格水平的上升还导致人们的财富减少和实际收入水平下降，以及本国出口产品相对价格的提高，从而使人们的消费需求下降，本国的出口也会减少、国外需求减少，进口增加。这样，随着价格水平的上升，总需求水平就会下降。 2．消费函数（consumption function） 答：消费函数是描述消费与多种影响因素之间的数学关系的函数。宏观经济中，消费支出受多种因素影响，如国民收入水平、物价水平、利率、收入分配、个人偏好和社会习俗等等。 经济学家一般认为，在影响消费的各种因素中，收入是影响消费最重要、最稳定的因素，即消费是收入的函数，根据凯恩斯的收入决定理论，收入是消费的主要决定因素，利率并不 重要，因而消费函数的表达式为，，，其中即是边际消费倾向
（），为自主消费。 依据收入—消费关系分析时间的长短，消费函数又分为短期消费函数和长期消费函数。 3．边际消费倾向（marginal propensity of consume，MPC） 答：边际消费倾向指可支配收入每增加一美元时消费的增量，可以用以下公式表示： 表示增加的消费，代表增加的收入。一般而言，边际消费倾向在0和1之间波动。在西方经济学中，任何增加的收入无非两个用途：消费和储蓄。所以，边际消费倾向与边际储蓄倾向之和必定为1（即）。边际消费倾向是递减的，当人们收入增加时，消费也会随之增加，但增加的幅度却不断下降。即随着收入的上升，在增加的每单位收入中，消费所占的比重越来越小，储蓄所占的比重却越来越大。 边际消费倾向递减规律的意义：①凯恩斯把边际消费倾向递减看成是经济危机的根源之一。由于收入增加时消费增量所占比例逐步减少，故经济扩张会带来消费需求不足，从而形成生产过剩的经济危机；②一些西方学者利用该规律为资本主义制度辩护。他们认为，既然收入增加时增加的消费所占比例减少，表明高收入的资本家会比工人拿出更大比例的收入用于储蓄。他们的结论是，分配有利于资本家是合理的，可以促进资本循环，促进经济发展； ③还有一些西方学者认为，边际消费倾向递减体现出经济制度的稳定性功能。经济衰退时人们收入水平较低，在增加的收入中将较大的比例用于消费。经济繁荣时人们收入水平较高，在增加的收入中将较小的比例用于消费。这样，该规律在衰退时有利于扩大总需求，在繁荣时有利于缩小总需求，具有使经济自动趋向稳定的作用。 4．自动稳定器（automatic stabilizer）
Chapter 2 2. Assume a German tourist buys a Mexican beer in a pub in Houston, Texas. How will the U.S. GDP be affected? C A.U.S. GDP will be unaffected, since a foreigner buys a foreign product. B. U.S. GDP will decrease since the beer has to be imported from Mexico C. U.S. GDP will increase by the value added at the Houston pub D. U.S. GDP will increase, but only by the sales tax assessed on the beer 7. If nominal GDP is $10,406 billion and the GDP-deflator is 110, then real GDP is about $9,460 billion 8. The GDP-deflator and the CPI differ from each other since C A. the GDP-deflator does not include services but the CPI does B. the GDP-deflator includes imported goods but the CPI doesn't C. the CPI measures a fixed market basket but the GDP-deflator doesn't D. the CPI includes more goods than the GDP-deflator does 9. Assume you desire a real rate of return of 4% on an investment and you expect the annual average inflation rate to be 3.2%. What should the nominal interest rate be on this investment? 7.2% Chapter 9 3. Assume a model with no government and no foreign sector. If the consumption function is defined as C = 800 + (0.8)Y, and the income level is Y = 2,000, then the level of total saving is -400 4. Assume a model with no government and no foreign sector. If we have a savings function that is defined as S = - 200 + (0.1)Y and autonomous investment decreases by 50, by how much will consumption change? -450 5. Assume a model without income taxation and no foreign sector. If government purchases are increased by $25 billion financed by a lump sum tax increase of $25 billion, then A A. national income will increase by $25 billion but the budget deficit is unaffected B. national income will increase $50 billion but the budget deficit is unaffected C. neither national income nor the budget deficit will be affected D. we cannot say for sure what will happen to national income or the budget deficit 6. The size of the expenditure multiplier increases with an increase in C A. government transfer payments B. the marginal propensity to save C. marginal propensity to consume D. the income tax rate 7. Assume the savings function is S = - 200 + (1/4)YD and the marginal tax rate is t = 20%. If the level of government spending increases by 100, by how much will the level of equilibrium income change? 250 8. Assume a model of the expenditure sector with income taxes. If the level of autonomous investment decreases (due to negative business expectations), which of the following will be true? D A. the actual budget surplus will not be affected B. the actual budget surplus will increase
第二章概念题 1．如果政府雇用失业工人，他们曾领取TR美元的失业救济金，现在他们作为政府雇员支取TR美元，不做任何工作，GDP会发生什么情况？请解释。 答：国内生产总值指一个国家（地区）领土范围，本国（地区）居民和外国居民在一定时期内所生产和提 供的最终使用的产品和劳务的价值。用支出法计算的国内生产总值等于消费C、投资I、政府支出G和净出口NX之和。从支出法核算角度看：C、I、NX保持不变，由于转移支付TR美元变成了政府对劳务的 购买即政府支出增加，使得G增加了TR美元，GDP会由于G的增加而增加。 2．GDP和GNP有什么区别？用于计算收入/产量是否一个比另一个更好呢？为什么？ 答：（1）GNP和GDP的区别 GNP指在一定时期内一国或地区的国民所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是本国国民生产的最终产品市场价值的总和，是一个国民概念，即无论劳动力和其他生产要 素处于国内还是国外，只要本国国民生产的产品和劳务的价值都记入国民生产总值。 GDP指一定时期内一国或地区所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是一国范围内生产的最终产品，是一个地域概念。 两者的区别：在经济封闭的国家或地区，国民生产总值等于国内生产总值；在经济开放的国家或地区，国 民生产总值等于国内生产总值加上国外净要素收入。两者的关系可以表示为：GNP=GDP+[本国生产要素在其他国家获得的收入（投资利润、劳务收入）-外国生产要素从本国获得的收入]。 （2）使用GDP比使用GNP用于计量产出会更好一些，原因如下： 1）从精确度角度看，GDP的精确度高； 2）GDP衡量综合国力时，比GNP好； 3）相对于GNP而言，GDP是对经济中就业潜力的一个较好的衡量指标。 由于美国经济中GDP和GNP的差异非常小，所以在分析美国经济时，使用这两种的任何一个指标， 造成的差异都不会大。但对于其他有些国家的经济来说明，这个差别是相当大的，因此，使用GDP 作为衡量指标会更好。但是，在衡量某地区居民生活水平时GNP更好一点。 3．CPI和PPI都计量价格水平，它们有什么区别，什么时候你会选择其中一个，而不选择另一个？ 答：（1）CPI与PPI的区别 消费者价格指数（CPI），是反映消费品（包括劳务）价格水平变动状况的一种价格指数，代表城市消 费者购买一篮子固定的商品和服务的费用。生产者价格指数（PPI）指建立在生产中所使用的商品的 市场篮子基础上的价格指数，计量既定的一篮子商品的成本。 PPI与CPI的区别在于：1）他们所包括的范围不同：CPI主要包括日用消费品；PPI包括原料和半成品。2）PPI被设计为对销售过程中开始阶段的价格的度量，而CPI衡量的是城市居民实际支付的价格——也即零售价格。 （2）两者选择其一的情形 当关注的是消费品价格波动或通货膨胀问题时，将使用CPI来度量；当关注的是经济周期问题或市场 价格波动预期时，应该使用PPI来度量。这是因为PPI是一种相对可变的价格指数，并且是经常发出 一般价格水平或CPI变化信号的价格指数，有时在它们出现之前就会发出信号。有鉴于此，PPI特别是其某些子指数，如“敏感材料”指数作为经济周期的指标，决策者会给与密切的关注。 4．GDP消胀指数指的是什么？它与消费价格指数和生产价格指数有何区别？在什么情况下，它计量价格比CPI和PPI更有用？ 答：（1）GDP消胀指数的含义
对外经济贸易大学宏观名词解释总结 适合科目：815经济学 1. 国内生产总值 国内生产总值是指经济社会（一国或地区）在一定时期内运用全部生产要素所生产的全部最终产品的市场价值。国内生产总值是一个地域概念。 2. 国民生产总值 国民生产总值是指某国国民所拥有的全部生产要素所生产的最终产品的市场价值。国民生产总值是一个国民概念。国民生产总值核算的方法有生产法，支出法和收入法。 3. 消费物价指数CPI 消费物价指数也称零售物价指数，是反映消费品价格水平变动状况的一种价格指数，一般是用通过对若干种主要消费品的零售价格以及服务费用进行加权平均来编制。用公式表示为： CPI=（一组固定商品按当期价格计算的价值/一组固定商品按基期价格计算的价值）*100% 4. 潜在产出 潜在产出是指经济中实现了充分就业时所达到的产量水平。它不是一个实际产出量，一般认为只有在充分就业时，才有可能实现潜在国内生产总值，增加潜在产出的途径是增加劳动、资本等生产要素投入，实现技术进步。 5. GDP 平减指数 GDP 平减指数是按当年价格计算的国内生产总值和按不变价格计算的国内生产总值的比率。用公式表示为： GDP 平减指数=报告期价格计算的当期国内生产总值/基期价格计算的当期国内生产总值 GDP 平减指数的优点是范围广泛，能比较准确地反映一般物价水平的变动趋向。 6. 相对收入消费理论 相对收入消费理论由美国经济学家 杜森贝利提出，他认为消费者会受自己 过去的消费习惯以及周围消费水准的影 响来决定消费。从而消费是相对地决定 的。按他的看法，消费与所得在长期维 持一固定比率，故长期消费函数是从原 点出发的直线，但短期消费函数则为有 正截距的曲线。 如图所示，当经济稳定增长时，消 费为收入的固定比率，故长期消费函数 为Y C L β=，但当经济景色变动时，短 期消费函数有着不同形态，例如原先收 入为Y 1时，消费为C 1，当收入由Y 1减少时，消费不遵循C L 途径，而是循C S1途径变动，1111Y C Y C t t >，即平均消费倾向变大，反之，当收入由Y t1逐渐恢复时，消费循着C S1的路径变动，直到达到原来的最大水平，当经济稳定增长时，又走Y C L β=的途径，如此，便形成了长期与短期消费函数的区别：
多恩布什《宏观经济学》（第12版）笔记和课后习题详解 内容简介 多恩布什《宏观经济学》（第12版）笔记和课后习题详解严格按照教材内容进行编写，遵循教材第12版的章目编排，共分24章，每章由两部分组成：第一部分为复习笔记，总结本章的重难点内容；第二部分是课（章）后习题详解，对第12版的所有习题都进行了详细的分析和解答。 目录 第1章导论 1.1 复习笔记 1.2 课后习题详解 第2章国民收入核算 2.1 复习笔记 2.2 课后习题详解 第3章增长与积累 3.1 复习笔记 3.2 课后习题详解 第4章增长与政策 4.1 复习笔记 4.2 课后习题详解 第5章总供给与总需求
5.1 复习笔记 5.2 课后习题详解 第6章总供给和菲利普斯曲线6.1 复习笔记 6.2 课后习题详解 第7章失业 7.1 复习笔记 7.2 课后习题详解 第8章通货膨胀 8.1 复习笔记 8.2 课后习题详解 第9章政策预览 9.1 复习笔记 9.2 课后习题详解 第10章收入与支出 10.1 复习笔记 10.2 课后习题详解 第11章货币、利息与收入11.1 复习笔记 11.2 课后习题详解 第12章货币政策与财政政策12.1 复习笔记
12.2 课后习题详解 第13章国际联系 13.1 复习笔记 13.2 课后习题详解 第14章消费与储蓄 14.1 复习笔记 14.2 课后习题详解 第15章投资支出 15.1 复习笔记 15.2 课后习题详解 第16章货币需求 16.1 复习笔记 16.2 课后习题详解 第17章联邦储备、货币与信用17.1 复习笔记 17.2 课后习题详解 第18章政策 18.1 复习笔记 18.2 课后习题详解 第19章金融市场与资产价格19.1 复习笔记 19.2 课后习题详解
1．如果政府雇用失业工人，他们曾领取TR美元的失业救济金，现在他们作为政府雇员支取TR美元，不做任何工作，GDP会发生什么情况？请解释。 答：国内生产总值指一个国家（地区）领土范围，本国（地区）居民和外国居民在一定时期内所生产和提供的最终使用的产品和劳务的价值。用支出法计算的国内生产总值等于消费C、投资I、政府支出G和净出口NX之和。从支出法核算角度看：C、I、NX保持不变，由于转移支付TR美元变成了政府对劳务的购买即政府支出增加，使得G增加了TR美元，GDP会由于G的增加而增加。 2．GDP和GNP有什么区别？用于计算收入/产量是否一个比另一个更好呢？为什么？ 答：（1）GNP和GDP的区别 GNP指在一定时期内一国或地区的国民所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是本国国民生产的最终产品市场价值的总和，是一个国民概念，即无论劳动力和其他生产要素处于国内还是国外，只要本国国民生产的产品和劳务的价值都记入国民生产总值。 GDP指一定时期内一国或地区所拥有的生产要素所生产的全部最终产品（物品和劳务）的市场价值的总和。它是一国范围内生产的最终产品，是一个地域概念。
两者的区别：在经济封闭的国家或地区，国民生产总值等于国内生产总值；在经济开放的国家或地区，国民生产总值等于国内生产总值加上国外净要素收入。两者的关系可以表示为：GNP=GDP+[本国生产要素在其他国家获得的收入（投资利润、劳务收入）-外国生产要素从本国获得的收入]。 （2）使用GDP比使用GNP用于计量产出会更好一些，原因如下：1）从精确度角度看，GDP的精确度高； 2）GDP衡量综合国力时，比GNP好； 3）相对于GNP而言，GDP是对经济中就业潜力的一个较好的衡量指标。 由于美国经济中GDP和GNP的差异非常小，所以在分析美国经济时，使用这两种的任何一个指标，造成的差异都不会大。但对于其他有些国家的经济来说明，这个差别是相当大的，因此，使用GDP作为衡量指标会更好。但是，在衡量某地区居民生活水平时GNP更好一点。 3．CPI和PPI都计量价格水平，它们有什么区别，什么时候你会选择其中一个，而不选择另一个？ 答：（1）CPI与PPI的区别 消费者价格指数（CPI），是反映消费品（包括劳务）价格水平变动状况的一种价格指数，代表城市消费者购买一篮子固定的商品和服务的费用。生产者价格指数（PPI）指建立在生产中所使用的商品的市场篮子基础上的价格指数，计量既定的一篮子商品的成本。
第23章国际调整与相互依存 一、概念题 1．自动调节机制（automatic adjustment mechanisms） 答：自动调节机制指自动起作用消除国际收支失衡问题的机制。在纯粹的自由经济中有货币—价格机制、收入机制及利率机制等国际收支自动调节机制。货币—价格机制，也称“价格—现金流动机制”，其描述的是国内货币供给存量与一般物价水平变动以及相对价格水平变动对国际收支的影响。当一国处于逆差状态时，对外支付大于收入，货币外流，物价下降，本国汇率也下降，由此导致本国出口商品的价格绝对或相对下降，从而出口增加，进口减少，贸易收入得到改善。收入机制的调节作用表现为：当国际收支逆差时，国民收入下降。国民收入下降引起社会总需求下降，从而进口需求也下降，进而改善贸易收支。 利率机制的调节作用表现为：当国际收支发生逆差时，本国货币供给存量减少，利率因此上升，这意味着本国金融资产的收益上升，从而对本国金融资产的需求上升，对外国金融资产的需求相对下降。这样，资金外流减少或内流增加，资本与金融项目收支得到改善。当国际收支顺差时，上述的自动调节仍然起作用，只是方向相反而已。 2．支出转换政策（expenditure switching policies） 答：支出转换政策指不改变社会总需求和总支出而只改变总需求和总支出方向的政策，主要包括汇率政策、补贴、关税政策以及直接管制。狭义的支出转换政策则专指汇率政策。 这种政策的目的在于在实现充分就业，增加国内总产出的同时实现国际收支的均衡。在开放经济条件下，总需求可以分为对国内商品和服务的需求以及对国外商品和服务的需求两种，在总需求水平保持一定时，增加对国内产品和服务的消费并减少对国外产品和服务的消
剖析几种经典中级宏观经济学教材 鲁峰 由于个人兴趣，把国内已经翻译出版的几种主要的中级宏观教材比较了一下，总结一点个人不成熟的学习建议。 本文主要比较的有：多恩布什（6版，人大）；伯南克（6版，机械）；布兰查德（3版，清华影印）；易纲、张帆（人大）；威廉森（2版，人大）；巴罗（5版，人大）；巴罗（现代观点，三联）；曼昆（5版，人大）；萨克斯（全球视角，三联）。除后两本粗略翻过以外，其他的均读过。 首先说说自己对这几种教材的一般看法和分类。类别自然是新凯恩斯与新古典两类，前者有多恩布什、伯南克、布兰查德、曼昆，后者有巴罗、威廉森。萨克斯是个特例，最后再讲。 其次说说学习顺序以及对不同教材的评价。个人觉得，我们国内的学生最好由新凯恩斯教材入手，一来与国内教材接轨密切，二来与现实结合紧密，能分析一些简单的政策问题，可以获得学习乐趣，三来如果你不想继续深造，那么新凯恩斯框架在你参与实际工作时能派上用场。接着，对于那些想继续深造的学生，我坚决推荐必须读上一本新古典的教材。至于为什么，我不再赘述，对现代经济学稍有了解的人都会知道。 下面，我就几种教材分别评述： 在新凯恩斯主义的教材中，多恩布什应该是比较老的，优点是它把新凯恩斯主义的核心模型详细叙述了个遍，例如AD-AS模型的微观基础模型（这里的微观基础模型不同于新古典主义的微观基础）它有全面详细的介绍，而布兰查德就没有。缺点是全书体系不是很清楚，需要自己细心整理。曼昆的在体系方面就好了许多，而且也对新凯恩斯主义微观基础模型做了比较详细的探讨，唯一的缺点就是他脱离不了“原理式”的写作风格，因此数理深度稍有欠缺。布兰查德与多恩布什刚好相反，体系十分严谨，结构十分清晰，论述也很有力，而且布兰查德是最不惮于在教材中运用数学的作者之一，因此他的书在数理模型方面远胜曼昆，唯一的缺点就是缺乏新凯恩斯主义微观基础模型。伯南克的书在以上三本教材风行以后被翻译过来，就在各方面都显得很平庸了。本来我对他教材的货币理论方面还给予了希望，结果也是很平庸。其实，他个人的一些主要货币理论，拿米什金（7版，人大）就可以做很好的补充学习。 在新古典主义的教材中，若以方法论来看，萨克斯的教材也可归入此类，但是他的本质思想仍然是凯恩斯主义的。这本教材的优点在于体系结构方面比较清晰，而且以新古典主义微观基础模型探讨了凯恩斯主义问题；但是他最大的缺点就是内容稍有过时。毕竟宏观经济学是要回归现实的，他的理论数据太老，一些新的思想更新也稍显迟缓，因此，无论在哪类书中我个人都不推荐它。巴罗的教材可以说开了真正意义上新古典主义教材的先河，第五版应该讲也是一个经典版本。只可惜人大经济学译丛的名誉就被这本书的翻译工作给毁了！我想用“眼泪打湿书页”来形容绝不为过，更可气的是，即便你眼泪打湿了书页，也还是搞不懂翻译者那晦涩的语言和错乱的字母、符号。在我们当前学习经济学过程中，很多人在论坛上吆喝着：“要读英文原版”。然而仔细看来，很多时候我们国内翻译的教材也还过得去，没有那样不堪入目，“不顾一切的读原版”只是某些爱炫耀的人自说自话罢了。但是对于梁晶工作室主持翻译的巴罗第五版，则必须读英文原版！幸好，巴罗在2008年新出了《宏观经济学：现代观点》一书，三联引进翻译了。虽然翻译者仍然是沈XX、陈XX但是内容流畅了太多。结构体系在目录就能一览无余，内容也新；它的缺点是你读后能明白他想说什么，但是当你自己做起研究来，是否能顺利的从新古典主义出发来考虑问题，并建立模型就很可怀疑了。而这一点威廉森的书恰恰做到了。他的书不仅结构严谨，逻辑清晰，而且全书使用的模型简洁漂亮，前后连续性强，是授人以渔一类的教材。更好的是，他在书后列出了每章模
CHAPTER 15 THE DEMAND FOR MONEY Solutions to the Problems in the Textbook: Conceptual Problems: 1. Money is any asset that is widely used as a medium of exchange. People want to hold money since it simplifies their current or future transactions. Since the nominal value of money is always known with certainty, it is a very safe and liquid asset, unless there is a very high rate of inflation. Therefore holding money protects asset holders against potential capital losses on riskier assets. 2. In a society in which there was no money, all trade would be completely based on barter. But barter is fairly inefficient, since suppliers of goods and services can't always find people who are both in need of the goods and services being offered and willing to trade something of value to the suppliers. Therefore, sooner or later, some form of money has to be invented to facilitate trade. A good example of a money substitute is U.S. cigarettes, which were used as medium of exchange during the hyperinflation in Germany in 1922/23, in P.O.W. camps after World War II, and in some Eastern European countries during the transition from command economies to more market-based economies when people lost confidence in their own currencies. It is easier to imagine a society in which there is no currency but everyone has a credit or debit card. The cashless purchase of goods via credit or debit cards (or via e-commerce) is not only convenient for customers but can also provide valuable information to sellers about the buying habits of consumers (which is one reason grocery stores now willingly accept credit or debit cards). In a cashless society all transactions would require electronic fund transfers through bank computers. At the end of the month, all accounts would have to be settled with the company that issued the credit or debit card, again through electronic fund transfers. This requires investment in computer technology, not only for banks but also for merchants. Such a system may seem highly efficient, but it may not work well for very small purchases, such as a magazine at a newspaper stand, a can of soda from a vending machine, or a local phone call. However, financial institutions have already developed pre-paid cash cards or phone cards that allow the purchase of smaller items or phone calls, with the amount of the purchase automatically deducted from the card. It should be noted, however, that a cashless society still requires money, that is, funds that can be stored in accounts, whether these are traditional bank accounts used to settle outstanding bills or accounts that exist simply for e-commerce. However, if pre-paid cash cards, debit and credit cards, or e-commerce funds are used increasingly, monetary aggregates may have to be redefined. 3. One could certainly make an argument for including credit card limits as part of money stock, since people substitute credit cards for cash as a means of payment. They may also use unused credit lines for precautionary purposes. But if we include this form of credit in the money stock, it becomes difficult to justify excluding others. Therefore it may be better not to include credit card limits in the definition of money. 4. In deciding how many traveler's checks to take on a vacation, an individual has to weigh the cost of obtaining the checks against the probability of cash being stolen and the possibility that personal checks or credit cards might not be honored. The lower the cost of traveler's checks and the higher the probability that cash may be stolen, the larger the sum that is likely to be carried in traveler's checks. On the other hand, holding cash or traveler's checks involves an opportunity cost, since no interest can be earned on cash or traveler's checks. Therefore, if credit cards are accepted at the vacation spot, vacationers may rely primarily on credit cards as a means of payments, since they can earn interest on 1