Part 12
SHORT-RUN ECONOMIC FLUCTUATIONS
Copyright © 2004 South-Western
Short-Run Economic Fluctuations:
Business Cycle (景氣循環)
• 資料來源：行政院經建會（網站：http://www.cepd.gov.tw）
台灣景氣指標
• 景氣循環：長期經濟發展過程中，經濟活絡時期與低迷時
期交互變動的現象。
景氣循環：包括擴張期（expansion）與收縮期（contraction）
• 擴張期劃分為復甦（recovery）、繁榮（prosperity）兩階段
• 收縮期劃分為緩滯（slowdown）、衰退（recession）或
蕭條（depression）。
景氣衰退：經濟活動持續下降。
景氣蕭條：一般指長時間嚴重的衰退，此現象很少發生。
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Business Cycle
• 經濟發展過程中，某些時期內經濟活動頻繁，形成
景氣擴張，
• 經過一段時間，擴張達高峰後，經濟活動緩和下來
，甚至負成長，形成景氣收縮期，
• 最後降至谷底，此後景氣又開始復甦好轉，再進入
另一階段的擴張。
• 如此，擴張與收縮交替出現，變化過程往往具某種
程度的週期性。但波動週期並無規則性。
• Short-run fluctuations in output and price level
should be viewed as deviations from the
continuing long-run trends.
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景氣循環階段
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Three Key Facts
about Economic Fluctuations
1. Economic fluctuations are irregular and
unpredictable.
（發生時間與週期不規則且無法預測）
2. Most macro variables fluctuate together：
co-movement but with lags. (變化密切但有落差)
(1) correlation (Y, X) >0
X:C, I, stock price
correlation (Y, u) <0：Y↑, u↓
(2) eg, recovery:
First, stock price↑, then Y↑, then C↑
3. Macro variables fluctuate by different amounts.
 different volatility (波動幅度不同)
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Taiwan data: GDP and LR Trend
Natural Log of Per Capita GNP and Trend
FIG U RE 2 5 b L n (Per Cap i t a Real G D P) an d T ren d
13
12
11
10
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
Year
ln(Per Capita Real GNP)
Trend in ln(Per Capita Real GNP)
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Taiwan data: GDP fluctuations
FIG U RE 2 5 c Percen t ag e D ev i at i o n s fro m T ren d i n l n (Per Cap i t a Real G D P)
0.008
Percentage Deviation from Trend
0.006
0.004
0.002
0.000
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
-0.002
-0.004
-0.006
Year
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Taiwan data：real investment
Fig 33.1b 台灣實質投資
3000000
2500000
2000000
1500000
1000000
500000
19
51
19
53
19
55
19
57
19
59
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
0
年度
實質投資
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Taiwan data：unemployment rate
FIGURE 28.2a The Unemployment Rate in Taiwan, 1978-2007
6
5
％
4
3
2
1
0
1981
1985
1989
整體失業率
1993
1997
2001
2005
Year
自然失業率
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How SR differs from LR
• Most economists believe that classical theory describes
the world in the LR but not in the SR.
eg, Monetary neutrality holds in LR but not in SR.
eg, Market mechanism does not work during great
depression.
• The birth of macro: SR analysis
Keynes, The General Theory of Employment, Interest, & Money,
《就業、利息與貨幣通論》(一般理論)，1936
參考維基百科網站
http://en.wikipedia.org/wiki/John_Maynard_Keynes#Main_contributions_to
_economic_thought
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1929-39「經濟大蕭條」
（Great Depression）
• 1929/10/29是美國歷史上最黑暗的一天。
「黑色星期二」是股票市場崩盤的日子，
「經濟大蕭條」（Great Depression）也正式開始。
先是資本市場重挫，繼而商品市場、勞動市場受創
，股票市值跌掉5/6，近7000家銀行破產，工業生
產衰退47%，1933年有1/4勞工失業，許多人無家
可歸。美國經濟陷入惡性循環的泥淖，無法自拔。
• 胡佛總統無能為力。1932年，羅斯福當選，採
Keynes政策，推動「新政」（New Deal）。美國於
1941年加入第二次世界大戰後，經濟大蕭條也隨之
結束。
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John Maynard Keynes 凱因斯
• John Maynard Keynes （right）
(6/5/1883 – 4/21/1946) was a British
economist whose ideas, called Keynesian
economics, had a major impact on modern
economic and political theory as well as on
many governments‘ fiscal policies. He is
particularly remembered for advocating
interventionist government policy, by which
the government would use fiscal and
monetary measures to mitigate the adverse
effects of economic recession, depression
and booms. Economists consider him one of
the main founders of modern theoretical
macroeconomics. His expression “In the
long run, we are all dead” is much quoted.
(維基百科)
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The Basic Model of Economic Fluctuations：
AD-AS model
Aggregate Demand and Aggregate Supply Model
(AD-AS model)
• to explain SR fluctuations in economic activity
around its LR trend.
• 2 variables are used :
(1) The economy’s output of goods and services
measured by real GDP：Y
(2) The overall price level measured the GDP deflator
( or by CPI) ：P
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The Basic Model of Economic Fluctuations：
AD-AS model
• AD curve: the quantity of goods and services that
households, firms, the government, and the
foreigners want to buy at each price level.
• AS curve: the quantity of goods and services that
firms choose to produce and sell at each price level.
• 4 components of AD：
Yd = C + I + G + NX
• Production function  AS
Ys = A F(L, K, H, N)
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Figure 33.2
Aggregate Demand and Aggregate Supply
Price
Level
AS
P*
l
AD
0
Y*
Quantity of
Output
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Figure 33.3 The Aggregate-Demand Curve
Price
Level
P
P2
1. A decrease
in the price
level . . .
0
AD
Y
Y2
Quantity of
Output
2. . . . increases the quantity of
goods and services demanded.
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AD: Downward Sloping
P vs.Yd = C + I + G + NX
AD is (-)vely sloped： 3 reasons
(1) P and C: the Wealth Effect
P↓  real wealth= (wealth/P) ↑ :
consumers feel more wealthy  C↑
(2) P and I: the Interest Rate Effect
P↓ Ch30: nominal money demand↓
 Ch 34: Keynes’s theory of liquidity preference.
(demand for interest-bearing assets↑)  r↓  I↑
(3) P and NX: the Exchange-Rate Effect
P↓(2) r↓ NCO↑ Ch32:depreciation NX↑
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Shifts in AD (Table 33.1 AD Curve: Summary)
• Exogenous change of AD components
at any given price level :
△C or △I or △G or △NX at any P
 horizontal shifts in AD
C↑ for new generation
or animal spirit I ↓ (盲目投資)
eg, 1929-39 Great Depression，2001 Recession
or gov’t expands its spending G↑
(Ch34: fiscal policy 財政政策 )
or foreign country’s GDP↓  NX↓
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Shifts in the AD Curve
Price
Level
P1
AD2
AD1
0
Y1
Y2
Quantity of
Output
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Aggregate-Supply (AS) Curve
• In the LR, AS curve (LRAS) is vertical.
• In the SR, AS curve (SRAS) is upward sloping.
• LRAS
(1) In LR, an economy’s production depends on
its supplies of labor, capital, and natural resources and on
the available technology.
Ys = A F(L, K, H, N) =Yf
(2) P does not affect these variables in the LR.
 LRAS curve is vertical at Yf
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LRAS: vertical
LRAS curve is vertical at Yf
Yf : the natural rate of output，
potential output or full-employment output
自然產出，潛在產出，充分就業產出
相對應的失業率為：uf
自然失業率（natural rate of unemployment ）
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Classical market mechanism
Classical market mechanism如何調整，
以勞動市場為例：
Firm set (W/P) =MPL
When P↓  (W/P) > MPL
 Ld < Ls  W ↓ proportional
Same (W/P)  same L
 same Ys : vertical LRAS
● 如Ch28: Ms ↓  P ↓ proportional
 上述… W ↓ proportional  same Ys=Yf
即Monetary neutrality
●
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Figure 33.4
The Long-Run Aggregate-Supply Curve
Price
Level
LRAS
P
P2
2. . . . does not affect Y in LR
1. P decreases
0
Yf
Quantity of
Output
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Shifts in LRAS
• Any change that alters the amounts of resources
and technology shifts the LRAS curve.
△L, △K, △H, △N, △A (2000s)
 shifts in LRAS (Fig 33.5)
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LR Growth and Inflation
in AD-AS Model
Classical Analysis of LR Growth and Inflation：
Fig 33.5
• Ch25: Production and Growth
Ch33: Resources and technology ↑
LRAS shifts to the right LR Growth (Yf↑)
• Ch30: Money Growth and Inflation (LR)
Ch33: Ms↑ Ch 34: r↓  I↑ AD↑  P↑
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Figure 33.5 Long-Run Growth and Inflation
3. and growth in Ms
Shifts AD
.
LRAS1980 LRAS1990 LRAS2000
Price
Level
1. In LR
technological
progress shifts LRAS
l
P2000
4. . . . and
ongoing inflation.
P1990
AD2000
P1980
AD1990
AD1980
0
Y1980
Y1990
Quantity of
Output
2. . . . leading to growth
in output . . .
Y2000
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SRAS: Upward sloping
(Table 33.2 SR AS Curve: Summary)
3 Theories
explaining why SRAS is Upward sloping:
(1) The Sticky-Wage Theory
(2) The Sticky-Price Theory
(3) The Misperceptions Theory
Classical :
Perfect information and
Wages and prices are perfectly flexible.
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Figure 33.6
The Short-Run Aggregate-Supply Curve
Price
Level
SRAS
P
P2
2. . . . reduces Y in SR
1. P decrease
0
Y2
Y
Quantity of
Output
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(1) The Sticky-Wage Theory
名目工資僵固
1950-60s Keynesian
• Nominal wages are slow to adjust, or are “sticky”
in SR due to contracts. (契約)
• W fixed (sticky)= Pe in SR. Pe : expected price
• If P↓< Pe (same W: downward rigidity)
 real wage (W/P) ↑ > MPL
 Higher production cost  less profitable
 Ld↓  Employment: L↓
 Firm’s output↓  Ys↓
考慮Classical mechanism如何調整
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(2) The Sticky-Price Theory
物價僵固
1930s Keynesian (IS-LM model)
1980s New Keynesian (Menu cost，菜單成本)
• Prices of some goods adjust sluggishly in response
to changing economic conditions.
• Firm set Pi= Pe
• An unexpected fall in P (P↓ < Pe)
Pi fixed (sluggish) in SR due to adjustment cost.
 firms with higher-than-desired prices. (Pi/P) ↑
 demand for firm’s goods ↓ (depresses sales)
Firm’s output ↓  Ys↓
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(3) The Misperceptions Theory
認知誤差理論
1960s: Monetarism (貨幣學派，Friedman) and
1970s: Rational Expectations (理性預期學派Ch35)
• Changes in the overall price level temporarily
mislead suppliers about market situations.
• An unexpected fall in P (P↓< Pe)
• Firm observes its Pi↓, and does not know also P↓
Pe does not adjust:
misperceive its relative prices (Pi/Pe)↓
 firm’s output↓  Ys↓
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Upward sloping AS in summary
All 3 theories conclude P  P e  Ys  Y f :
in SR: P e fixed  SR output deviation from LR trend
A general setup :
Ys  Y f  a ( P  P e ), P e : expected price level
SR : P  P  Ys  Y f , P  P  Ys  Y f
e
e
ie, P , Ys : SRAS (+)vely sloped
LR : P e  P  Ys  Y f
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Figure 33.7 The Long-Run Equilibrium
Price
Level
LRAS
SRAS
A
P*
AD
0
Yf
Quantity of
Output
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Shifts in SRAS
△L, △K, △N, △A, and
Expected Price Level (△Pe)
 shifts in SRAS (Fig 33.8):
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SRAS Shifts due to △Pe
•
Wages, prices, and perceptions are set
on the basis of Pe.
eg, Pe ↑  P< Pe relatively
1. W↑= Pe ↑  (W/P)↑  L↓
2. Pi ↑= Pe ↑  (Pi/P) ↑  firm’s sales↓
3. Pi: no change  misperceive (Pi/Pe)↓
 firm’s output↓
 Ys = Yf + a(P-Pe) : Ys↓ at any P
(even P does not change)
 SRAS shifts to the left
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Two Causes of Economic Fluctuations:
Comparative Statics
•
△AD or △AS
 △Y and △P: economic fluctuations
1. An Adverse Shifts in AD
Fig 33.8: AD↓ + SRAS SR: P↓, Y↓
Y↓: recession
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Policy Implication
• Policy Responses to Recession --- Ch36: Debate 1
(影片：Commanding Heights)
• Keynesian Interventionists:
To counter the adverse effect of AD ↓
Take action to increase AD
by using monetary and fiscal policy
Ms ↑ or G↑ → AD ↑→ Y ↑.
Keynes, “In the long run, we are all dead.”
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Policy Implication
• Classical: Do nothing
and wait for prices and wages to adjust.
In LR, shifts in AD affect P but not Y. (Fig33.8)
AD↓  P↓  LR: Pe ↓=P↓
 SRAS shifts to the right  P↓, Y↑=Yf
亦即，AD↓ + LRAS  P↓, but Y=Yf
(unaffected)
If let AD↑：imprecise, and with a long lag
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Figure 33.8 A Contraction in AD
2. . . . causes output to fall in the short run . . .
Price
Level
LRAS
SRAS
SRAS2
3. . . . but over
time, the SRAS
shifts
A
P
B
P2
1. A decrease in AD
P3
C
AD
AD2
0
Y2
Y
4. . . . and output returns
to its natural rate.
Quantity of
Output
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2 Causes of Economic Fluctuations
2. An Adverse Shift in AS
eg, Oil Price ↑: 1973-75, 1978-81
• A decrease in one of the determinants of output
shifts AS curve to the left:
Y↓ < Yf，U↑，P↑ (Fig 33.10)
Stagflation（停滯性通膨）：
a period of recession and inflation.
• Policymakers who can influence AD (eg, G↑)
 Y↑= Yf，but P↑ further (Fig 33.11)
Let AD ↑ cannot offset both of these adverse
effects simultaneously.
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Figure 33.10 An Adverse Shift in SRAS
1. An adverse shift in the SRAS
Price
Level
LRAS
SRAS2
SRAS
B
P2
A
P
3. . . . and
P to rise
AD
0
Y2
2. . . . causes output to fall . . .
Y
Quantity of
Output
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Figure 33.11
Accommodating an Adverse Shift in AS
1. When SRAS falls
Price
Level
LRAS
SRAS2
SRAS
P3
C
P2
A
3. . . . which P
causes the
P
to rise
further . . .
0
4. . . . but keeps output
at its natural rate.
Natural rate
of output
expanding AD
AD2
AD,
Quantity of
Output
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Summary
• SR economic fluctuations around LR trends.
• SR fluctuations are irregular and largely
unpredictable.
• When recessions occur, real GDP and other
measures of income, spending, and production
fall, and unemployment rises.
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Summary
• Economists analyze SR economic fluctuations
using the AD-AS model：
(P, Y) adjust to balance AD and AS.
• AD curve slopes downward for 3 reasons:
a wealth effect, an interest rate effect, and an
exchange rate effect.
• Any event or policy that changes C, I, G, or NX
at a given P will shift AD curve.
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Summary
• LRAS is vertical.
• SRAS is upward sloping.
• 3 theories explaining upward slope of SRAS:
the sticky-wage theory, the sticky-price theory,
and the misperceptions theory.
• The position of SRAS curve also depends on Pe.
• △AD or △AS
 △Y and △P: economic fluctuations
• Stagflation is a period of falling output and
rising prices.
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CH35: Phillips Curve
• CH33，AS: (P,Y)
• CH35，Phillips Curve: (π , u)
(1) SR由P, π正向關係，Y, u的反向關係：
SRAS is upward sloping.
SR Phillips Curve is downward sloping.
(2) LRAS is vertical.
 LR Phillips Curve is vertical.
亦即，短期失業率與通貨膨脹率具有互相抵換
（trade-off）的關係。長期兩者無關。
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Fig 35.5 (part) LR and SR Phillips Curve
Inflation
Rate
LR
Phillips curve
A
SR Phillips curve
0
Natural rate of
unemployment
Unemployment
Rate
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