The relationship between aggregate demand and price level. Aggregate demand and aggregate supply. Factors influencing them. Classic AS model

The process of combining individual prices for goods into an aggregate price (price level), reducing the equilibrium quantity of individual goods into the real volume of national production is called aggregation. Only after clarifying the essence of aggregation does it become possible to move on to the analysis of aggregate demand and aggregate supply, because the curves of these concepts can be constructed only on the basis of clarifying the relationship between the aggregate price (price level) and the real volume of national production, which are plotted respectively on the ordinate and abscissa axes.

Aggregate demand. Aggregate demand curve

Aggregate demand- this is the need for goods and services, presented in monetary form, on the part of the population, enterprises, the state and foreign countries. It represents an abstract model of the relationship between the price level and the real volume of national production. The general characteristic of this model is that the lower the price level for goods, the larger part of the real volume of national production buyers will be able to purchase and, conversely, a higher price level is accompanied by a fall in the possible volume of sales of the national product. Consequently, there is an inverse relationship between the price level and the real volume of national production. It is most clearly expressed through the aggregate demand curve.

The downward sloping shape of the AD curve shows that at a lower price level, a larger volume of national product will be sold.

Rice. Aggregate demand curve

Price factors of aggregate demand

The price factors of aggregate demand include, first of all, the effect of the interest rate, the effect of material assets, or real cash balances, and the effect of import purchases.

The interest rate effect influences the nature of the movement of the aggregate demand curve in such a way that, on the one hand, consumer spending and, on the other, investment depend on its level. More precisely, the problem is that as price levels rise, so do interest rates, and rising interest rates are accompanied by a decline in consumer spending and investment. The fact is that an increase in the price level expands the demand for cash. Consumers need additional funds to make purchases, entrepreneurs need to purchase raw materials, equipment, pay wages, etc. If the volume of the money supply does not change, this inflates the price for using money, i.e. interest rate, which, in turn, limits spending on both purchases and investments. It follows from this that an increase in the price level for goods increases the demand for money, raises the interest rate and thereby reduces the demand for the real volume of the national product produced.

The wealth effect also enhances the downward trajectory of the aggregate demand curve. This is due to the fact that as prices rise, the purchasing power of financial assets such as fixed-term accounts and bonds decreases, real incomes of the population fall, and therefore the purchasing power of families decreases. If prices fall, purchasing power increases and expenses increase.

The effect of import purchases is expressed in the ratio of national prices and prices on the international market. If prices on the national market increase, then on the international market the sale of domestic goods decreases, buyers begin to purchase cheaper imported goods. Thus, the effect of import purchases leads to a decrease in aggregate demand for domestic goods and services. A decrease in prices for goods strengthens the export capabilities of the economy and increases the share of exports in the aggregate demand of the population.

Non-price factors of aggregate demand

These include changes in consumer, investment and government spending, and in spending on net exports. The action of non-price factors is accompanied by changes in the value of aggregate demand. If they contribute to an increase in aggregate demand, then the curve shifts from position AD1 to AD2; if non-price factors limit aggregate demand, the curve shifts to the left to AD3.

Let's take a closer look at non-price factors. Changes in consumer spending can affect aggregate demand for various reasons. A clear example is the purchase of imported goods. Previously, a version of the action of price factors was given, when when the price level changes in the foreign and domestic markets, changes occur in one direction or another in aggregate demand. However, similar changes occur even at constant prices: it turns out, for example, that Austrian shoes that appeared on the Italian market are of higher quality than domestic ones. Naturally, the demand for these products at equal prices will be higher. There are many such options for the action of non-price factors, but the main ones are consumer welfare, consumer debt and taxes.

If we turn to the factor of consumer welfare, we can see that it depends on the state of affairs in the field of financial assets (stocks, bonds) and the situation with real estate (land, buildings). Thus, an increase in stock prices at a constant price level on the market will lead to an increase in welfare and aggregate demand will increase. At the same time, falling land prices will reduce welfare and reduce aggregate demand.

We can also talk about consumer expectations. Thus, if they expect their income to increase in the near future, they will now begin to spend significantly more income, which will shift the aggregate demand curve to the right. In the reverse perspective, purchasing actions will be limited and the aggregate demand curve will shift to the left. A shift in aggregate demand in the event of impending inflation is very sensitive. Most buyers strive to make a purchase before the price increase and refrain from making it in the first days after the increase.

The size of aggregate demand is affected by consumer debt. If a person purchased a large item on credit, then for a certain time he will limit himself in other purchases in order to quickly pay off the debt. However, immediately after the loan is repaid, the demand for purchases will quickly increase.

There is a direct connection between the amount of income tax and aggregate demand. The tax reduces family income, so increasing it reduces aggregate demand, while decreasing it increases it.

Aggregate demand is also affected by changes in investment. If enterprises acquire additional funds in order to expand production, then the aggregate demand curve will shift to the right, and if the trend is reversed, to the left. Interest rates, expected returns on investments, corporate taxes, technology, and excess capacity can all operate and be influenced here.

When we talk about the interest rate, we do not mean its movement up or down (this was taken into account in price factors), but a change under the influence of fluctuations in the volume of money supply in the country. An increase in the money supply reduces the interest rate and increases investment, while a decrease in the money supply increases the interest rate and limits investment. Expected profits increase the demand for investment goods, and business taxes reduce the demand for investment goods. New technologies stimulate investment processes and expand aggregate demand, and the presence of excess capacity, on the contrary, restrains the demand for new investment goods.

Government spending affects aggregate demand in the following way: with constant tax collections and interest rates, government purchases of the national product expand, thereby increasing the consumption of goods.

Aggregate demand is also associated with the cost of exporting goods. The principle here is this: the more goods enter the world market, the higher the aggregate demand. The fact is that the increase in national incomes of other countries allows them to expand the purchase of imported goods and products, which, in turn, expands the demand for goods in those countries from which goods are imported. Therefore, for developed countries, foreign trade is beneficial with both developing and developed countries. In the first case, they have the opportunity to sell products that are not in demand in civilized markets; in the second, on the contrary, they can satisfy the demands of other states for modern goods and services.

Aggregate demand (AD) is the relationship between the quantity of manufactured products for which consumer demand is presented and the general price level. In other words, the aggregate demand curve shows the quantity of goods and services that will be purchased at any given price level. Aggregate demand is the sum of all expenditures on final goods and services produced in the economy; reflects the relationship between the volume of total output demanded by economic agents and the general price level in the economy.

In the structure of aggregate demand we can distinguish:

1. Demand for consumer goods and services;

3. Demand for goods and services from the state;

4. Demand for our exports from foreigners (or demand for net exports if import demand is included in the first three components of aggregate demand).

Some components of aggregate demand relatively stable, change slowly, for example, consumer spending. Others are more dynamic, for example, investment expenditures; their changes cause fluctuations in economic activity.

Aggregate demand shows the real need for goods and services, expressed in monetary form.

The need arises from the following sectors:

· household;

· entrepreneurs, firms;

· government, government agencies;

· external world.

E that need is satisfied in the market for goods and services at each value of the general price level. This means that the consumer is ready to purchase the product or service he needs at each price level.

Factors that determine aggregate demand:

1. Price level; Demand may increase when prices fall and decrease when prices rise.

2. Income of the population, household; they must have trend to increase.

3. Government procurement; those taxes that generate budget revenues. The tax system makes it possible to increase resources, the ability to provide government agencies with a certain type of service or investment. Also, exports and imports play a very important role, here there is already a dependence on world prices, how the relationship between exports and imports develops.

Factors are determined depending on which category of aggregate demand we are considering. In general, aggregate demand can be depicted as a graph.

We plot the values ​​on the ordinate axis the general price level, and on the x-axis is either Q or gross income, which is formed in the production process. This is a curve that reflects the relationship between the price level and output. At a high price level, prices rise, production volume falls slightly, and vice versa. When prices increase, we move upward along the curve, and when prices decrease, we move downward. The curve reflects the relationship between prices and production costs. This position of the curve is called negative; the AD curve has a negative slope.

When prices fall they increase real cash balances; prices fall, which means that income has the same value that is distributed between consumption and savings. Some part decreases because low prices allow you to spend less resources on purchasing goods. This means that the saved part of this income is formed and increases, and cash balances increase.

Interest rates are also reduced when characterizing the negativity of the curve. As a result, aggregate demand and output increases, this is a positive aspect of lower prices. Thus, the lower the price level, the higher the demand, and vice versa. Price fluctuations reflect this negativity.

The shape and nature of the curve is determined by the action of three main factors:

When an offer changes money from the central bank, the set of possible combinations of prices and output changes. In this case, the curves can take different positions.

The aggregate demand curve can occupy different positions. If the supply of money decreases, then the value of production decreases, production in nominal terms falls and, therefore, for each given price level there will be a smaller quantity of output produced. The AD curve in this case will shift to the left. If the supply of money increases, then this will correspond to large reserves of money in real terms, and as a result, production will increase. An increase in the money supply causes the AD curve to shift to the right. Here we can talk about the general influence of the money supply on the relationship between prices and income.

Main pattern, revealed by analyzing aggregate demand and its graphical representation, is that the real demand for goods in the economy falls as the price level rises.

Characteristics of aggregate demand: The real demand for goods in the economy will fall as the price level rises. The AD curve itself does not determine the price level or the volume of product created, but it will show the possible relationships between these two variables: an increase in price - a decrease in production, and vice versa. Essentially, this is important in order to assess what aggregate demand in the economy depends on, what factors - income and prices.

Aggregate demand AD (from the English aggregate demand) is an economic aggregate that sums up the magnitude of individual demands for all final goods and services offered on the product market. In an ideal macroeconomic model, aggregate demand should be equal to the real amount of national output that can be purchased at any price level.

It has two forms: natural material and cost.

The physical form of aggregate demand reflects the need for goods and services. Its structure can be represented by: firstly, certain types of products and services of non-productive consumption, satisfying personal and other non-productive needs; secondly, the totality of all means of production and production services (research and development aimed at improving technology; information serving production; communications, etc.).

Aggregate demand in value terms is the sum of all expenditures on final goods and services produced in the economy. It reflects the relationship between the volume of total output demanded by economic agents: the population, enterprises and the state, and the general price level in the economy.

In the structure of aggregate demand, 4 macroeconomic entities can be distinguished that influence the volume of demand:

1. aggregate household demand – consumer demand (C);
2. firms' demand for investment (I);
3. demand for goods and services from the state (G);
4. net exports (Xn) is the difference between foreigners' demand for domestic goods and domestic demand for imported goods.

To determine the volume of aggregate demand, it is necessary to determine the volume of demand of each of these subjects. Household demand dominates the goods market. It accounts for more than half of final aggregate demand. Consumer demand or spending changes slowly, but is relatively stable. Other components of aggregate demand are more dynamic, such as investment demand, and their changes cause fluctuations in economic activity.

From the structure of aggregate demand, the following formula is extracted: AD = C + I + G + Xn.

On the right side it contains the same terms as the formula for the main macroeconomic identity (GNP by expenditure). The difference between them is that AD is the expenses that business entities intend to make, and not the actual expenses that have already been made during the year.

Graphically, the aggregate demand model is represented as a curve with a negative slope, which characterizes the inverse relationship between the volume of purchased real GNP and the price level. In Figure 1, the aggregate demand curve AD shows the quantity of goods and services that consumers are willing to purchase at each possible price level. It gives such combinations of output and the general price level in the economy at which the commodity and money markets are in equilibrium.

The main (basic) macroeconomic model is the model of “aggregate demand - aggregate supply” ( "AD - AS"). It allows, firstly, to identify the conditions of macroeconomic equilibrium, determine the value of the equilibrium production volume and the equilibrium price level, secondly, to explain fluctuations in production volume and the price level in the economy, thirdly, to show the causes and consequences of these changes and, finally, describe various options for the state's economic policy.

Aggregate demand (AD) is the sum of the demands of all macroeconomic agents (households, firms, government and foreign sector) for final goods and services. The components of aggregate demand are: 1) household demand, i.e. consumer demand ( WITH); 2) demand of firms, i.e. investment demand ( I); 3) demand from the state, i.e. government procurement of goods and services ( G); 4) demand of the foreign sector, i.e. net exports ( Xn). Therefore, the formula for aggregate demand is:

AD = C + I + G + Xn.

This formula is similar to the formula for calculating GDP by expenditure. The difference is that the GDP formula is the sum actual expenses of all macroeconomic agents that they made during the year, while the aggregate demand formula reflects the expenses that intend to do macroeconomic agents. The magnitude of these aggregate expenditures, i.e., the magnitude of aggregate demand, depends primarily on the price level.

The value of aggregate demand represents the quantity of final goods and services that will be demanded by all macroeconomic agents at each given price level. The higher the general price level, the smaller the aggregate demand will be and the less spending all macroeconomic agents will intend to make on the purchase of final goods and services. Consequently, the dependence of the magnitude of aggregate demand on the general price level is inverse and can be represented graphically as a curve with a negative slope (Fig. 3.1). Each point on the aggregate demand curve (curve AD) shows the cost of the quantity of final goods and services that will be demanded by all macroeconomic agents at each possible price level.

Rice. 3.1. Aggregate demand curve

In Fig. 3.1 the x-axis shows real GDP (the value of aggregate demand) Y, measured in monetary units (in dollars, marks, rubles, etc.), i.e., a cost indicator, and on the y-axis - the general price level (GDP deflator), measured in relative values. At a higher price level ( R 1) the amount of aggregate demand ( Y 1) will be less (point A) than at a lower price level ( R 2), to which the value of aggregate demand corresponds ( Y 2) (point B).

The aggregate demand curve cannot be obtained by summing individual or market demand curves. This is due to the fact that the axes display cumulative values. Thus, an increase in the general price level (GDP deflator) does not mean an increase in prices for all goods in the economy and can occur in conditions when prices for some goods decrease, and for others remain unchanged. Accordingly, the negative slope of the aggregate demand curve also cannot be explained by effects that explain the negative slope of the individual and market demand curves, that is, the substitution effect and the income effect. For example, the replacement of relatively more expensive goods with relatively cheaper ones cannot affect the amount of aggregate demand, since it reflects the demand for all final goods and services produced in the economy for the entire real GDP, and a decrease in the amount of demand for one good is compensated by an increase in the amount of demand for another. Negative slope AD is explained by the following effects:

1) real wealth effect(the effect of real cash holdings), or Pigouvian effect(in honor of the famous English economist, colleague of J.M. Keynes at the Cambridge School, student and follower of Alfred Marshall, Professor Arthur Pigou, who introduced the concept of real money reserves into scientific circulation). Real wealth, or real money reserves, is understood as the ratio of an individual's nominal wealth ( M), expressed in monetary terms, to the general price level ( R):

real cash reserves = M / R.

Thus, this indicator is nothing more than real purchasing power of nominal wealth person, which can be represented by both cash (monetary financial assets) and securities (non-monetary financial assets, i.e. shares and bonds) with a fixed par value. As the price level rises, the purchasing power of nominal wealth falls, i.e., the same amount of nominal money reserves can buy fewer goods and services than before.

The Pigouvian effect is as follows: if the price level rises, then the amount of real money holdings (real wealth) decreases and people feel relatively poorer than before and reduce consumption, and since consumption (consumer demand) is part of aggregate demand, it decreases the amount of aggregate demand;

2) interest rate effect, or Keynes effect. Its essence is as follows: if the price level rises, then the demand for money increases, since people need more money to buy goods that have become more expensive. People withdraw money from bank accounts, the ability of banks to issue loans is reduced, credit resources become more expensive, therefore, the “price” of money (credit price), i.e., the interest rate, increases. And since loans are primarily taken out by firms, using them to purchase investment goods, an increase in the cost of credit leads to a reduction in investment demand, which is part of aggregate demand, and, consequently, the amount of aggregate demand decreases.

In addition, an increase in the interest rate also reduces consumer spending: on the one hand, not only firms, but also households take out loans (consumer loans), especially for the purchase of durable goods, and its rise in price leads to a reduction in consumer demand, and on the other hand, a rise in the interest rate means that savings now pay a higher return, which encourages households to increase savings and reduce consumption spending. The quantity of aggregate demand thus decreases to an even greater extent;

3) the effect of import purchases(net export effect), or Mundell–Fleming effect: If the price level rises, then the country's goods become relatively more expensive for foreigners and therefore exports decline. Imported goods become relatively cheaper for citizens of a given country, so imports increase. As a result, net exports fall, and since they are part of aggregate demand, the quantity of aggregate demand decreases.

In all three cases, the relationship between the price level and the amount of aggregate demand is inverse, therefore, the aggregate demand curve (curve AD) must have a negative slope.

These three effects show the impact price factors (changes in the general price level) by size aggregate demand and determine the movement along aggregate demand curve. Non-price factors influence myself aggregate demand. This means that the quantity of aggregate demand changes equally at each possible price level, which, in turn, determines shift crooked AD. If, under the influence of non-price factors, aggregate demand increases, the curve AD shifts to the right, and if it contracts, then it shifts to the left.

Non-price factors of changes in aggregate demand include all factors influencing the amount of aggregate expenditures:

1) factors affecting total consumer spending, such as:

A) level of well-being (W). The higher the level of well-being, i.e. the amount of wealth, the greater the consumer spending and the greater the aggregate demand - curve AD moves to the right. Otherwise, it moves to the left;

b) current income level (Yd). An increase in the level of income leads to an increase in consumption and, accordingly, to an increase in aggregate demand (a shift in the curve is observed AD right);

An increase in government purchases increases aggregate demand (a shift in the curve AD to the right), and their decrease shortens;

4) factors affecting net exports, such as:

A) And national income in other countries (Yworld). The growth of GDP and income in the foreign sector leads to an increase in demand for goods and services of a given country and, consequently, to an increase in its exports, and as a result to an increase in net exports, which increases aggregate demand (curve shift AD right);

b) value of gross national product And national income in a given country (Ydomestic). If GDP and income in a country increase, then its economic agents begin to place greater demand on goods and services of other countries (foreign sector), which leads to an increase in imports and, consequently, a reduction in aggregate demand in a given country (curve AD moves to the left);

V) exchange rate of national currency (e). The exchange rate is the price of a national monetary unit in the monetary units of another (or other) country, i.e., the amount of foreign currency that can be obtained for one monetary unit of a given country. An increase in the exchange rate of the national currency reduces net exports and leads to a decrease in aggregate demand (a shift in the AD left).

The change in net exports resulting from a change in the exchange rate as a non-price factor in the change in aggregate demand that shifts the curve AD, should be distinguished from the effect of import purchases, in which a change in net exports occurs as a result of the action of a price factor (i.e., a change in the price level), which changes the amount of aggregate demand and causes movement along the curve AD.

Non-price factors that also influence aggregate demand and explain curve shifts AD, perform monetary factors. This is explained by the fact that the curve AD can be derived from the quantity theory of money equation (also called exchange equation, or Fisher equation- in honor of the famous American economist Irving Fisher, who proposed a mathematical formula for the conclusion that followed from the quantity theory of money, which appeared back in the 18th century. and developed in the works of D. Hume, and later D. Ricardo, J. - B. Say, A. Marshall, etc.):

MV = PY,

Where M– mass (quantity) of money in circulation; V– velocity of money circulation (a value showing the number of turnovers that one monetary unit makes on average per year, or the number of transactions that one monetary unit serves on average per year); P– price level in the economy (GDP deflator); Y– real GDP.

From this equation we obtain an inverse relationship between the value of GDP and the price level:

Y = (MV) / R.

This means that price factors (changes in price levels) affect size aggregate demand, causing movement along the curve AD. From the same equation we obtain two non-price factors of aggregate demand, the change of which changes myself aggregate demand and shifts the curve AD:

1) amount of money in circulation. If the supply of money in an economy increases, then all economic agents feel richer and increase their spending. An increase in aggregate spending leads to an increase in aggregate demand and shifts the curve AD to the right. In addition, an increase in the supply of money in the economy reduces the interest rate (the price of money, i.e., the price of credit), and the lower the interest rate, the greater, as we have already noted, are both consumer and investment spending and, therefore, the greater the aggregate demand. Conversely, a reduction in the supply of money in the economy reduces aggregate demand, shifting the curve AD to the left.

The regulation of the money supply is carried out by the country's central bank. This is precisely what underlies monetary policy, with the help of which the state can pursue a stabilization policy by influencing aggregate demand;

2) velocity of money. An increase in the velocity of money circulation leads to an increase in aggregate demand: if each monetary unit (with a constant quantity in circulation) makes more turnover and services more transactions, then this is equivalent to an increase in the value of the money supply, which leads to an increase in aggregate demand.

Aggregate offer (AS) represents the cost of the quantity of final goods and services that are offered to the market (for sale) by all producers (private firms and state enterprises). As in the case of aggregate demand, we are not talking about the actual volume of production, but about the amount of aggregate output that all producers ready(intend) to produce and offer for sale on the market at a certain price level.

The dependence of the value of aggregate supply (total output) on the price level in the short term is direct: the higher the price level, i.e., the higher prices producers can sell their products at, the greater the value of aggregate supply. This means that it is possible to construct an aggregate supply curve (curve AS), each point of which shows the amount of aggregate supply at each given price level. Thus, price size aggregate supply and explain the movement along crooked AS.

Non-price itself aggregate supply and shearing curve AS, are all the factors that change the cost per unit of production. So, if costs increase, then aggregate supply decreases and the curve AS moves up to the left. If costs fall, then aggregate supply increases and the curve AS moves down to the right.

Most non-price factors affect aggregate supply in the short run, but some of them can lead to long-term changes in aggregate supply.

Note that the concepts of short-term and long-term periods in macroeconomics differ from the corresponding concepts in microeconomics, where the criterion for dividing into short-term and long-term periods is change in the amount of resources, while in macroeconomics such a criterion is change in resource prices. In the short term, changes in resource prices either do not occur at all or occur disproportionately to the change in the general price level. In the long term, resource prices change in proportion to changes in the general price level.

Non-price factors affecting aggregate supply include:

1) resource prices (R resources). The higher the prices for resources, the higher the costs and the lower the aggregate supply. The main components of costs are, firstly, prices for raw materials and supplies, secondly, the wage rate (price of labor) and, thirdly, the interest rate (payment for capital, i.e., the rental price of capital). Thus, the interest rate is a non-price factor of both aggregate demand and aggregate supply. Rising resource prices lead to a shift in the curve AS left up, and their decrease leads to a shift in the curve AS down right. In addition, the value of resource prices is influenced by:

A) amount of resources that the country has (the amount of labor, capital, land and entrepreneurial ability). The greater the resource reserves a country has, the lower the prices for resources;

b) prices for imported resources. Since resources, especially natural resources, are distributed unevenly between countries, changes in the prices of imported resources for a resource-importing country can have a significant impact on aggregate supply. Rising prices for imported resources increases costs, reducing aggregate supply (curve AS moves up to the left). An example of the negative impact of rising prices of imported resources on aggregate supply is the oil shock of the mid-1970s. (a sharp increase in oil prices by oil-producing countries - members of the international OPEC cartel), which led to a sharp reduction in aggregate supply in most developed countries and led to stagflation;

V) degree of monopoly in the resource market. The higher the monopolization of resource markets, the higher the prices for resources, and therefore costs, and, consequently, the lower the aggregate supply;

2) resource productivity, i.e. the ratio of total production to costs. Resource productivity is the reciprocal of unit costs: the higher the resource productivity, the lower the costs and the greater the aggregate supply. Productivity growth occurs if (a) output increases for the same inputs, or (b) inputs decrease for the same output, or (c) both occur.

The main reason for the growth of resource productivity is scientific and technological progress, which ensures the emergence and use in production of new, more advanced and productive technologies, more productive equipment and requires an increase in the level of qualifications and professional training of workers. Therefore, this factor affects aggregate supply not only in the short term, but also in the long term, leading to a shift in the long-term curve AS and delivering economic growth. Technology (technological progress) affects both aggregate demand and aggregate supply;

So, if a person wants to provide an amount of 10 thousand dollars for retirement, then at a rate of 10% he must accumulate 100 thousand dollars, and at a rate of 20% - only 50 thousand dollars.

Graphically, the ratio of investment and savings in the Keynesian model is presented in Fig. 3.4. Since savings do not depend on the interest rate, their graph is a vertical curve, and investment weakly depends on the interest rate, so they can be depicted by a curve with a slight negative slope. If savings increase to S 1, then the equilibrium interest rate cannot be determined, since the investment curve I and a new savings curve S 2 do not have an intersection point in the first quadrant. This means that the equilibrium interest rate ( Re) should be looked for in another, namely the money market (according to the ratio of demand for money MD and offers of money MS) (Fig. 3.5).

4. Since prices are rigid in all markets, market equilibrium is established not at full employment level resources. Thus, in the labor market (Fig. 3.3, A) the nominal wage rate is fixed at W 1, in which firms will demand a number of workers equal to L 2. Difference between LF And L 2 are unemployed. Moreover, in this case, the cause of unemployment is not the refusal of workers to work for a given nominal wage rate, but the rigidity of this rate. Unemployment turns from voluntary into forced: workers would agree to work at a lower rate, but entrepreneurs do not have the right to reduce it. Unemployment is becoming a serious economic problem.

Rice. 3.4. Investments and savings in the Keynesian model

Rice. 3.5. Money market

On the commodity market (Fig. 3.3, V) prices also “stick” at a certain level ( R 1). A decrease in aggregate demand as a result of a decrease in income due to the presence of unemployed people (note that unemployment benefits were not paid) and therefore a decrease in consumer spending leads to the inability to sell all produced products ( Y 2 < Y*), giving rise to a recession (decline in production). A downturn in the economy affects investor sentiment, their expectations about future domestic returns on investment and causes them to become pessimistic, which causes a decrease in investment spending. Aggregate demand falls even further.

5. Because private sector expenditures (household consumption expenditures and firms' investment expenditures) are unable to provide the amount of aggregate demand corresponding to potential GDP (i.e., the amount at which the output produced at full employment of resources could be consumed) , then an additional macroeconomic agent must appear in the economy, either presenting its own demand for goods and services, or stimulating the demand of the private sector and thus increasing aggregate demand. This agent, of course, should be the state. This is how Keynes justified the need government intervention And government regulation economy.

6. The main economic problem (in conditions of underemployment of resources) becomes the problem aggregate demand, and not aggregate supply, i.e. the Keynesian model studies the economy from the side of aggregate demand.

7. Since the stabilization policy of the state, i.e., the policy to regulate aggregate demand, affects the economy in the short term, the Keynesian model also describes the behavior of the economy in short term(“short-run”). Keynes did not consider it necessary to look far into the future, to study the behavior of the economy in the long run, wittily noting that “in the long run we are all dead.”

In the short run, the aggregate supply curve SRAS(short-run aggregate supply), if the economy has a large amount idle resources(as, for example, it was during the Great Depression), has horizontal view. This is the so-called “extreme Keynesian case” (Fig. 3.6, A). When resources are not limited, their prices do not change, so costs do not change and there are no prerequisites for changing the level of prices for goods. However, in modern conditions, the economy has an inflationary nature, the rise in prices for goods does not occur simultaneously with the rise in prices for resources (as a rule, there is a delay, i.e., a time lag, so the rise in prices for resources occurs disproportionately growth of the general price level) and the expectations of economic agents are becoming increasingly important, then in macroeconomic models (both neoclassical and neo-Keynesian) the curve short term aggregate supply ( SRAS) is graphically depicted as a curve having positive slope(Fig. 3.6, b).

Long-run aggregate supply curve ( LRAS) is depicted as vertical curve (Fig. 3.7, A), since in the long run markets come into mutual equilibrium, prices for goods and resources change in proportion to each other(they are flexible), agents' expectations change and the economy tends to potential output. At the same time, the real volume of output does not depend on the price level and is determined by the country’s production potential and the amount of available resources. Since the quantity of aggregate supply does not change when the price level changes, price factors do not provide influence on the value of aggregate supply in the long run (movement along the vertical curve of long-term aggregate supply from point A to point B). When the price level rises from R 1 to R 2 the output value remains at its potential level ( Y *).

Rice. 3.6. Short-run aggregate supply curve

Basic non-price factor, which changes itself aggregate supply in the long run determines shift crooked LRAS(Fig. 3.7, b), is a change in the quantity and/or quality (productivity) of economic resources, which underlies changes in the production potential of the economy and, consequently, changes in the value potential output(from Y 1* up to Y 2*) at each price level. Increasing the quantity and/or improving the quality of economic resources shifts the curve LRAS to the right, which means economic growth. Accordingly, a decrease in the quantity and (or) deterioration in the quality of economic resources causes a reduction in the production potential of the economy, a decrease in the value of the potential output volume (a shift in the curve LRAS left).

The amount of aggregate supply in the short run depends on the price level. The higher the price level ( R 2 > R 1), i.e. the higher the price at which producers can sell their products, the greater the amount of aggregate supply ( Y 2 > Y 1) (Fig. 3.7, V). The relationship between the magnitude of aggregate supply and the price level in the short term is direct, and the short-term aggregate supply curve has a positive slope. Thus, price factors (general price level) influence size short-run aggregate supply and explain the movement along crooked SRAS(from point A to point B).

Rice. 3.7. The impact of price and non-price factors on aggregate supply.

Factors: a, c– price, b, d– non-price

Non-price factors affecting itself aggregate supply in the short run and shearing the aggregate supply curve, as discussed earlier, is represented by all factors that change unit costs. If costs rise, aggregate supply decreases and the aggregate supply curve shifts upward to the left (from SRAS 1 to SRAS 2). If costs fall, then aggregate supply increases and the aggregate supply curve shifts down to the right (from SRAS 1 to SRAS 3) (Fig. 3.7, G).

Equilibrium in the model "AD - AS" is established at the point of intersection of the aggregate demand curve and the aggregate supply curve. The coordinates of the intersection point give the value of the equilibrium volume of production (equilibrium GDP) and the equilibrium price level. Changes in either aggregate demand or aggregate supply (curve shifts) lead to changes in the equilibrium and equilibrium values ​​of GDP and the price level.

Rice. 3.8. Consequences of an increase in aggregate demand in the “AD – AS” model

In Fig. 3.8 shows that the consequences of change (in this case growth) aggregate demand depends on kind aggregate supply curve. So, in the short term, if the curve AS horizontal, height AD leads only to an increase in the equilibrium output volume ( Y 1 increases to Y 2), without changing the price level (Fig. 3.8, A). If the short-term aggregate supply curve has a positive slope, then an increase in aggregate demand results in an increase in the equilibrium value of output (from Y 1 to Y 2), and the equilibrium price level (from R 1 to R 2) (Fig. 3.8, b). In the long run, changes in aggregate demand do not affect the equilibrium value of output (the economy remains at the level of potential GDP - Y*), but only affects the change in the equilibrium price level (from R 1 to R 2) (Fig. 3.8, V).

Change aggregate supply has the same consequences regardless depending on the type of curve AS. As can be seen from Fig. 3.9, the growth of aggregate supply in all three cases (if the aggregate supply curve is horizontal, has a positive slope and is vertical) leads to an increase in the equilibrium level of output (from Y 1 to Y 2) and a decrease in the equilibrium price level (from R 1 to R 2). The difference is that in the short term (with a shift SRAS) the value of actual GDP increases (Fig. 3.9, A and rice 3.9, b), while in the long run (with a shift LRAS) potential GDP increases ( Y*), i.e. the production capabilities of the economy (Fig. 3.9, V).

Let us consider the economic mechanism of equilibrium changes in the model "AD - AS" in the short and long term (Fig. 3.10). Let us assume that the economy is initially in a state of short-term and long-term equilibrium (point A), where all three curves intersect: AD, S.R.A.S. And LRAS. If aggregate demand increases, then the curve AD moves right to AD 2 (Fig. 3.10, A). An increase in aggregate demand leads to the fact that entrepreneurs begin to sell off inventories and increase production, attracting additional resources, and the economy reaches point B, where the actual volume of production ( Y 2) exceeds potential GDP ( Y*). Point B is a point short term short term aggregate supply).

Attracting additional resources (above the full employment level) requires additional costs, so firms' costs increase and aggregate supply decreases (curve SRAS gradually moves up to SRAS 2), as a result of which the price level increases (from R 1 to R 2) and the amount of aggregate demand decreases to Y*. The economy returns to the long-run aggregate supply curve (point C), but at a higher price level than the original price level. Point C (like point A) is a point long term equilibrium (intersection of the aggregate demand curve with the long term aggregate supply). Therefore, it is necessary to distinguish between equilibrium GDP and potential GDP. On our chart equilibrium GDP corresponds to all three points: A, B and C, while potential GDP corresponds only to points A and C when the economy is in a state long term balance. At point B it is established actual GDP, i.e. equilibrium GDP in short term period.

Rice. 3.9. Consequences of aggregate supply growth in the “AD – AS” model

Similarly, we can consider establishing long-term and short-term equilibrium in the economy if the curve AS has a positive slope (Fig. 3.10, b). The difference here is that when justifying the transition of the economy from point A to point B, one must keep in mind that with an increase in aggregate demand, firms not only sell off inventories and increase production (which for some time is possible without increasing prices for resources), but and raise prices for their products. So first the economy moves along crooked SRAS, since it only applies price factor and growing magnitude aggregate supply. As a result, the economy hits the mark short term equilibrium (point B), which corresponds not only to a higher volume of output than at point A ( Y 2), but also a higher price level ( R 2). Because resource prices have not changed and the price level has risen, real incomes (such as real wages) have fallen ( W / P 2 < W / P 1). Owners of economic resources begin to demand higher prices for resources (for example, nominal wages), which leads to increased costs (impact non-price factor) and a reduction in aggregate supply ( shift left up curve SRAS), which leads to an even greater increase in the price level (from R 2 to R 3). As a result, the economy reaches point C, corresponding long-term equilibrium and potential GDP.

Rice. 3.10. Transition from short-term to long-term equilibrium

Shocks to aggregate demand and aggregate supply.

A shock is an unexpected sharp change in either aggregate demand or aggregate supply. There are positive shocks (an unexpected sharp increase) and negative shocks (an unexpected sharp decrease) AD And AS.

Positive shocks aggregate demand shift the curve AD to the right. Positive shocks aggregate supply shift the curve AS: down, if it has a horizontal view ( SRAS); right down, if it has a positive slope ( SRAS); right, if it is vertical ( LRAS).

Negative shocks aggregate demand shift the curve AD to the left, and negative shocks aggregate supply shift the curve AS depending on its type up (SRAS), left up (SRAS) or left (LRAS).

The causes of positive aggregate demand shocks can be either a sharp unanticipated increase in the supply of money or an unexpected sharp increase in any of the components of aggregate spending (consumer, investment, government or foreign sector). The mechanism and consequences of the impact of a positive aggregate demand shock on the economy are actually discussed above (Fig. 3.10), and in the short term they appear in the form inflation gap output when actual GDP exceeds potential ( Y 2 > Y*), which ultimately leads to an increase in the price level (inflation).

The opposite are the consequences of a negative shock (sharp reduction) in aggregate demand (Figure 3.11), the reasons for which can be either an unexpected reduction in the supply of money (contraction of the money supply) or a sharp reduction in aggregate spending. In the short term, this leads to a decrease in output and means a transition of the economy from point A to point B - the point of short-term equilibrium (a decrease in aggregate demand, i.e., total expenses, causes an increase in firms' inventories, overstocking, and the inability to sell manufactured products, which is the reason curtailment of production). Appears recessionary gap output - a situation when actual GDP is less than potential ( Y 2 < Y*). In conditions of perfect competition, entrepreneurs will begin to reduce prices for their products, the price level will decrease (from R 1 to R 2), i.e., deflation will occur (in economic literature, therefore, one can find the concept deflationary gap), the amount of aggregate demand will increase (movement along crooked AD), and the economy will reach point C - point long term equilibrium, where production equals potential.

This situation can only occur under conditions of perfect competition. In imperfect competition there is a so-called "ratchet effect"(a ratchet in technology is a mechanism that allows the device to move only forward).

Rice. 3.11. Negative aggregate demand shock

In macroeconomics, the “ratchet effect” manifests itself in the fact that prices are easy to increase, but it is almost impossible to reduce them, which is primarily due to the rigidity of the nominal wage rate (in modern conditions, neither workers nor trade unions will allow it to be reduced), which constitutes a significant part of the costs firms and, consequently, the prices of goods.

Negative aggregate supply shocks (Figure 3.12, A) is usually called price shocks, since they are caused by changes leading to an increase in costs and therefore the price level. Such reasons include:

1) rising prices for raw materials, which are one of the main components of costs;

2) trade union struggle for an increase in the nominal wage rate (if the struggle is successful and wages increase significantly, then the resulting increase in costs leads to a reduction in aggregate supply);

3) environmental measures of the state(environmental protection laws require increased costs for firms to build treatment facilities, use filters, etc., which affects production volume);

4) natural disasters, leading to serious destruction and damage to the economy, etc.

A negative aggregate supply shock affects the economy only in the short run, since, as a rule, the government takes measures that stimulate aggregate supply in order to prevent a reduction in the country's productive capacity, i.e., a reduction in GDP in the long run (potential GDP). This is precisely the situation that took place in the mid-1970s. due to the oil shock.

Sharp increases in oil and other energy prices increased costs and led to a reduction in aggregate supply in the short term (curve shift SRAS left up to SRAS 2). As a result simultaneously there was a serious decline in production, i.e. recession, or stagnation (GDP decreased from Y* before Y 2 and remained at this low level for quite a long time), and an increase in the price level (from R 1 to R 2), i.e. inflation (point B in Fig. 3.12, A). This situation in economic literature is called “stagflation” (from the merger of the words “stagnation” and “inflation”). Governments of developed countries, fearing a decline in economic potential due to high unemployment, have done everything possible to increase aggregate supply (bend the curve back SRAS, ensuring GDP growth and reducing inflation). If the government does not take any measures, then they say that it is adapting to the shock, hoping that aggregate supply will gradually increase and the economy itself, with the help of the market mechanism, will overcome the consequences of the negative supply shock and return to its original position (from point B to point And in Fig. 3.12, A).

Rice. 3.12. Aggregate supply shocks:

A) negative; b) positive

Positive aggregate supply shock (Figure 3.12, b) is usually called technological shock, since a sharp increase in aggregate supply is usually associated with scientific and technological progress, and above all with the improvement of technology. Technological changes lead to an increase in resource productivity, which is one of the most important factors in increasing aggregate supply. The emergence of technological innovation leads first to growth short term aggregate supply (curve SRAS 1 moves right down to SRAS 2). The volume of output in the short run increases to Y*2, and the price level decreases to R 2. But as changes in technology increase the economy's production capabilities, there is a rightward shift in the long-run aggregate supply curve. Therefore, point B also becomes a long-term equilibrium point. Potential GDP increases (from Y*1 to Y*2). There is economic growth in the economy.

Lecture 10 (2 hours).

GENERAL MACROECONOMIC EQUILIBRIUM: AD – AS MODEL OF AGGREGATE DEMAND AND AGGREGATE SUPPLY.

1. Aggregate demand and the factors that determine it.

2. Aggregate supply: classical and Keynesian model.

3. Macroeconomic equilibrium in the model of aggregate demand and aggregate supply.

4. Shocks of supply and demand. Stabilization policy.

General macroeconomic equilibrium is the equilibrium state of the entire market system; it is the establishment of equality of supply and demand in all interconnected markets. On market of final goods and services equilibrium will mean that producers maximize income, and consumers receive maximum utility from the products they buy. Equilibrium on factor market shows that all production resources supplied to it have found their buyer, and the marginal income of resource owners, which forms demand, is equal to the marginal product of each resource, which forms supply. Equilibrium on money market characterizes the situation when the amount of expected funds is equal to the amount of money that the population and entrepreneurs want to have.

Macroeconomic equilibrium is a state of the economic system in which there is equality in the volume of production and the volume of consumer demand.

Aggregate demand and the factors that determine it.

Aggregate demand is the real volume of gross production Y (or the volume of total output) that consumers (households, firms, government) are willing to buy at the existing price level P, this is the sum of all expenditures on final goods and services produced in the economy.

In the absence of restrictions on production, as well as in the absence of strong inflation, growth in aggregate demand stimulates an increase in output and employment, having little impact on the price level.

If the economy is close to full employment, then an increase in aggregate demand will cause not so much an increase in output (since almost all capacity is already used) but an increase in prices.

Fig. 10.1. Aggregate demand curve

The aggregate demand curve AD shows the quantity of goods and services that consumers are willing to purchase at each possible price level (Fig. 10.1). It gives such combinations of output and the general price level in the economy at which the commodity and money markets are in equilibrium. The aggregate demand curve AD is similar to the market demand curve in microeconomics.

The downward-sloping nature of the aggregate demand curve or, which is the same thing, the inverse relationship between the price level and the amount of aggregate demand, is explained by price and non-price factors. Beginning of the form

End of form

Price factors aggregate demand, or price effects, This:

Interest rate effect (loan interest);

Wealth or cash balance effect;

The effect of import purchases.

Interest rate effect manifests itself in the fact that price rise increases the demand for money. With a constant volume of money supply, this increases the interest rate, that is, the fee for using money, this leads to reduce some spending by businesses (they reduce investment) and consumers (they postpone their purchases), thereby leading to a decrease in aggregate demand.

Wealth or cash balance effect is due to the fact that as prices rise, the purchasing power of the population’s financial assets, such as bank deposits and bonds, decreases. That is, a population that does not have assets can actually purchase fewer goods and services, which means it becomes poorer, and therefore is likely to reduce its spending, which will reduce aggregate demand.

Effect of import purchases acts as a substitute product and affects the value of net exports (Xn), it means that if the price level in a country increases, then the demand for goods of this country abroad will decrease, this will lead to a decrease in exports. In addition, the country's population will begin to buy fewer domestic goods, which will now be more expensive, compared to imported goods, which will become cheaper, this will lead to an increase in imports. As a result, net exports will fall, and since they are one of the components of aggregate demand, this will lead to a decrease in AD.

Thus, as a result of each of these three effects, an increase in the general level of prices in the economy leads to a decrease in the amount of aggregate demand.

Non-price factors shift the AD curve either to the right and up when aggregate demand increases, or to the left and down when it decreases. Changes in price factors are graphically depicted by movement along the aggregate demand curve, i.e. changes in aggregate demand depend on the dynamics of the general price level.

The expression of this relationship can be obtained from the equation of the quantity theory of money:

MV = PY, from here P = MV/Y or Y = MV/P, Where

P- the price level in the economy, in this case - the price index.

Y- the real volume of output for which there is demand.

M- the amount of money in circulation.

V- speed of circulation of money.

Since the aggregate demand curve AD is constructed on the basis of a fixed supply of money M and the velocity of circulation V, then with an increase in prices P, real money reserves decrease, therefore the quantity of goods and services for which Y is in demand also decreases.

Non-price factors that influence aggregate demand and shift the curve to the right or left(Fig. 10.2.) :

Equation of the basic economic identity (GNP volume) Y = C + I + G + Xn

Factors influencing household consumption expenditure: consumer welfare, taxes, expectations; (C)

Inflationary expectations of the population (increase in aggregate demand);

Factors affecting firms' investment expenditures: interest rates, preferential lending, opportunities for receiving subsidies; (I)

Government purchases (G) shift the aggregate demand curve down (and to the left) when purchases decrease and up (to the right) when they increase;

State tax policy (an increase in taxes causes a reduction in aggregate demand, a decrease leads to an increase in net income and the number of purchases at given price level, i.e. increases aggregate demand);

External economic factors affecting net exports(Xn): fluctuations in exchange rates, prices on the world market and state customs policy (for example, high tariffs and bans on the import of agricultural products cause rising prices and a fall in aggregate demand).

The supply of money M and the velocity of its circulation V (which follows from the equation of the quantity theory of money);

Fig. 10.2. The impact of interest rates and imports on the aggregate demand curve.