【正文】 n Policy ? Due to these long lags, critics of active policy argue that such policies may destabilize the economy rather than help it: By the time the policies affect agg demand, the economy’s condition may have changed. ? These critics contend that policymakers should focus on longrun goals, like economic growth and low inflation. 45 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY Automatic Stabilizers ? Automatic stabilizers: changes in fiscal policy that stimulate agg demand when economy goes into recession, without policymakers having to take any deliberate action 46 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY Automatic Stabilizers: Examples ? The tax system ? Taxes are tied to economic activity. When economy goes into recession, taxes fall automatically. ? This stimulates agg demand and reduces the magnitude of fluctuations. 47 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY Automatic Stabilizers: Examples ? Govt spending ? In a recession, ines fall and unemployment rises. ? More people apply for public assistance (., unemployment insurance, welfare). ? Govt outlays on these programs automatically increase, which stimulates agg demand and reduces the magnitude of fluctuations. 48 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY CONCLUSION ? Policymakers need to consider all the effects of their actions. For example, ? When Congress cuts taxes, it needs to consider the shortrun effects on agg demand and employment, and the longrun effects on saving and growth. ? When the Fed reduces the rate of money growth, it must take into account not only the longrun effects on inflation, but the shortrun effects on output and employment. 49 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY CHAPTER SUMMARY ? In the theory of liquidity preference, the interest rate adjusts to balance the demand for money with the supply of money. ? The interestrate effect helps explain why the aggregatedemand curve slopes downward: An increase in the price level raises money demand, which raises the interest rate, which reduces investment, which reduces the aggregate quantity of goods amp。s. Since P is higher, they will need more money to do so. Hence, an increase in P causes an increase in money demand, other things equal. 17 18 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY How r Is Determined MS curve is vertical: Changes in r do not affect MS, which is fixed by the Fed. MD curve is downward sloping: a fall in r increases money demand. M Interest rate MS MD1 r1 Quantity fixed by the Fed Eq’m interest rate 19 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY How the InterestRate Effect Works Y P M Interest rate AD MS MD1 MD2 P2 P1 Y1 Y2 r2 r1 A fall in P reduces money demand, which lowers r. A fall in r increases I and the quantity of gamp。 changes in any of these will shift the longrun aggregate supply curve. 5 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY CHAPTER SUMMARY ? In the short run, output deviates from its natural rate when the price level is different than expected, leading to an upwardsloping shortrun aggregate supply curve. The three theories proposed to explain this upward slope are the sticky wage theory, the sticky price theory, and the misperceptions theory. ? The shortrun aggregatesupply curve shifts in response to changes in the expected price level and to anything that shifts the longrun aggregate supply curve. 6 CHAPTER 34 THE INFLUENCE OF MONETARY AND FISCAL POLICY CHAPTER SUMMARY ? Economic fluctuations are caused by shifts in aggregate demand and aggregate supply. ? When aggregate demand falls, output and the price level fall in the short run. Over time, a change in expectations causes wages, prices, and perceptions to adjust, and the shortrun aggregate supply curve shifts rightward. In the long run, the economy returns to the natural rates of output and unemployment, but with a lower price level. 7 CHAPTE