tailieunhanh - Lecture Principles of money, banking, and financial markets (12th edition): Chapter 23 - Ritter, Silber, Udell

Chapter 23 - The Keynesian framework. In this chapter you will learn to see the differences among saving, investment, desired saving, and desired investment and explain how these differences can generate short-run fluctuations in real GDP; understand the Keynesian cross and determination of an equilibrium level of income; analyze autonomous changes in macroeconomic variables and their potential to cause economic fluctuations. | Chapter 23 The Keynesian Framework Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Learning Objectives • See the differences among saving, investment, desired saving, and desired investment and explain how these differences can generate short run fluctuations in real GDP • Understand the Keynesian cross and determination of an equilibrium level of income • Analyze autonomous changes in macroeconomic variables and their potential to cause economic fluctuations Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-2 Learning Objectives (Cont.) • Define the liquidity preference theory and its role in determining interest rates • Comprehend the Keynesian theory of monetary policy and its role in impacting the economy • Understand the Keynesian version of aggregate demand/aggregate supply analysis Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-3 1 Introduction • In 1936, John Maynard Keynes published The General Theory of Employment, Interest and Money • Concerned with short-run as compared to the Classical Economists who focused on long-run • Argued that free market forces could take considerable time to adjust • In the short run there could be lengthy periods of underemployment Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-4 Introduction (Cont.) • Preoccupied with what determined the level of real economic activity during long periods of recession or depression • If economy were sufficiently depressed, could experience increases in real output without any increase in the price level • Assumed that the price level is fixed • Focused on aggregate demand and supply since full employment was irrelevant Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 23-5 When Saving Doesn’t Equal Investment • Classical economists stated that equilibrium existed when total saving desired by households equals total investment desired by firms • However, Keynes asked what happens when desired savings