宏观经济学英文版第十九章.pptVIP

The distinction between DD, AA,and ZZ curves. 1.The domestic demand DD= C+I+G 2.The domestic demand for domestic goods AA=C+I+G-- IM 3. The demand for domestic goods ZZ =C+I+G-IM+EX Increases in Demand,Domestic or Foreign The trade deficit and the smaller multiplier have the same cause .So ,when income increase ,the effect on the demand for domestic goods is smaller than it would be in a closed economy ,leading to a smaller multiplier . And ,because some of the increase in demand falls on import ---and exports are unchanged –the result is a trade deficit. Governments do not like to run trade deficit ,and for good reasons. Thus , countries prefer increase in foreign demand (which improve the trade balance )to increase in domestic demand (which worsen the trade balance). But these preference can have disastrous implications. When all countries are in recession, and each have roughly balanced trade to start, each countries might be reluctant to take measures to increase domestic demand and might just wait for other countries to increase their domestic demand. Although a depreciation and an increase in foreign output have the same effect on domestic output and the trade balance ,there is a subtle but important difference between the two. A depreciation makes foreign goods relatively expensive ,this means that given their income ,people who now have to pay more to buy foreign goods are now worse off. If they ask for more wage ,that may increase the price of domestic goods as well ,leading to a smaller real depreciation. That is so called dynamic effects of a depreciation . Governments trying to achieve a large depreciation often find themselves with strikes and riots in the streets. Combining Exchange-Rateand Fiscal Policies Question : Suppose output is at its natural level ,but the economy is running a large trade deficit .The government would like to reduce the trade deficit while leaving output unchanged .