ch8.ppt

Macroeconomics Chapter 8 Cyclical Behavior of Real GDP—Recessions and Booms Real GDP = trend real GDP + cyclical part of real GDP Cyclical part of real GDP Coming from the business cycle Short-term economic fluctuations. Cyclical Behavior of Real GDP—Recessions and Booms Cyclical Behavior of Real GDP—Recessions and Booms Cyclical Behavior of Real GDP—Recessions and Booms An Equilibrium Business-Cycle Model An Equilibrium Business-Cycle Model Conceptual Issues Assuming that these fluctuations reflect shocks to the economy. Change in level of technology Y= A· F( K, L) An increase in A means that the economy is more productive. A decrease in A means that the economy is less productive. An Equilibrium Business-Cycle Model Uses equilibrium conditions to determine how the shocks affect real GDP, Y, and other macroeconomic variables, such as consumption, C, investment, I, and the quantity of labor input, L. RBC model Finn Kydland Edward Prescott （2004 Nobel Laureates） An Equilibrium Business-Cycle Model The Model Y= A· F( K, L) the capital stock, K, as fixed in the short run, the labor input, L, is fixed. Changes in Y will reflect only changes in A. When A rises, Y rises, When A falls, Y falls. An Equilibrium Business-Cycle Model The Model The marginal product of labor and the real wage rate An increase in the technology level, A, raises the marginal product of labor, MPL, for given inputs of capital, K, and labor, L. An Equilibrium Business-Cycle Model An Equilibrium Business-Cycle Model An Equilibrium Business-Cycle Model The Model Marginal product of capital, real rental price, and the interest rate An increase in the technology level, A, raises the marginal product of capital, MPK, for given inputs of capital, K, and labor, L An Equilibrium Business-Cycle Model An Equilibrium Business-Cycle Model An Equilibrium Business-Cycle Model Marginal product of capital, real rental price, and the interest rate i = R/P ? δ i = MPK(evaluated at given K and