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Lectures in Macroeconomics- Charles W. Upton Updating the Model
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The Raw Phillips Curve U 0
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Updating the Model The Correct Phillips Curve - e U 0 UnUn
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Updating the Model Applying Okun’s Law
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Updating the Model Restating Okun’s Law
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Updating the Model Restating Okun’s Law
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Updating the Model Graphing the Function - e 0 UnUn 0 YfYf
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Updating the Model Our Starting Point S SR S LR D H* w*
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Updating the Model Our Starting Point S SR S LR D H* w* Fortunately a couple of simple steps will reconcile these two graphs
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Updating the Model Restating the Graph P o = Price Level last year (or period) P =P o (1+ ) P e =P o (1+ e ) - e 0 YfYf
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Updating the Model Restating the Graph - e 0 YfYf
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Updating the Model The P curve PePe P YfYf P Y=P(P) - e 0 YfYf
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Updating the Model The P curve PePe P YfYf P Y=P(P) P > P e : Y>Y f. P <P e : Y<Y f. P = P e, Y=Y(P e ) Y f
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Updating the Model The Intuition PePe P YfYf P Y=P(P)
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Updating the Model Our Basic Graph Y M PePe rere P YfYf P P
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Updating the Model The Y and M Curves Y M PePe rere P A familiar friend
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Updating the Model The Y and M Curves Y M PePe rere P Because Y=P(P), the shapes of the Y and M curves are slightly altered.
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Updating the Model A Problem Y M PePe P YfYf PP Y<Y f
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Updating the Model A Problem Y M PePe P YfYf PP Y<Y f The nation decides to build a monument to Irving Fisher, financed by taxing every individual $10
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Updating the Model A Problem Y M PePe P YfYf PP Y<Y f The nation decides to build a monument to Irving Fisher, financed by taxing every individual $10 Will this Help?
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Updating the Model The Auctioneer’s View Y M PePe P YfYf PP The increase in government spending on the monument more than offsets the reduction in consumption because of the decrease in wealth.
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Updating the Model The Auctioneer’s View Y M PePe P YfYf PP The increase in government spending on the monument more than offsets the reduction in consumption because of the decrease in wealth. At any point along the Y curve Y D >Y S. The Y curve shifts up and to the right
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Updating the Model The Auctioneer’s View Y M PePe P YfYf PP The reduction in wealth also means the M curve shifts up and to the left.
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Updating the Model The Auctioneer’s View Y M PePe P YfYf PP P up; r (?); Y up
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Updating the Model The Auctioneer’s View Y M PePe P YfYf PP P up; r (?); Y up Once again, Irving saves the day!
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Updating the Model Our Starting Point S SR S LR D H* w* Beforehand, we did our analysis in terms of this graph. Have we left something out?
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Updating the Model Our Starting Point S SR S LR D H* w* Beforehand, we did our analysis in terms of this graph. Have we left something out? No. That is the point of the P curve, which incorporates how H increases with P
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Updating the Model Another Objection Workers know the (well- deserved) monument is coming, and with it increased government purchases..
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Updating the Model Another Objection Workers know the (well- deserved) monument is coming, and with it increased government purchases.. Might we get a change in expectations?
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Updating the Model Another Objection Workers know the (well- deserved) monument is coming, and with it increased government purchases.. Might we get a change in expectations? Perhaps, but lets keep this simple. No shift in P curve
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Updating the Model Another Objection Workers know the (well- deserved) monument is coming, and with it increased government purchases.. Might we get a change in expectations? Perhaps, but lets keep this simple. No shift in P curve We return to this issue later
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Updating the Model The Basic Model Y M PePe rere P YfYf P P
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Updating the Model Summary Y M PePe P YfYf PP
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Updating the Model End ©2004 Charles W. Upton. All rights reserved
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