Chapter 13 Slide 1
Chapter 13
Compared Static Analysis of
Aggregate Demand &
Disequilibrium Theory
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Content
? A simple closed model
? The static solution of simple model
? Basic concepts of disequilibrium theory
13.1 Simple Closed Model
?Simple closed model
?without import and export。
?The model as follow,
YZme q u i l ib r i u
Y
YY
H
P
P
r a t e
iYL
P
M
o n d i t i o n is
rYIIn v e s t m e n t
YCCo n s u m p t i o n
GICZi n c o m e
?
?
?
?
?
?
?
???
?
?
：
：
：
：
：
：
c o n d i t i o n s
)(p r i c e of i n c r e a s e t h eof
),(me q u il i b r i u m a r k e t ' f i n a n c i a l of c
),(f u n c t i o n i
)(f u n c t i o n c
e q u a t i o n
.
?
13.1 Simple Closed Model
?Simple closed model
?We can know the characters of some macroeconomic
variables based on microeconomics,
???
?
?
?
??
?
?
?
?
?
?
??
?
?
?
??
???
irt h e
i
L
L
Y
L
Ld e m a n d
r
I
I
Y
I
Ii n v e s t m e n t
dY
dC
CM P C
GICZi n c o m e
iY
rY
Y
：
：
：
：
：
r a t e r e a l a n d r a t e n o m i n a lb e t w e e n r e l a t i o n
0,0m o n e y of;0,0
);1,0(
e q u a t io n
13.1 Simple Closed Model
?Simple closed model
?The nature of rate
?General knowledge,rate is a opportunity cost of
lending,a kind price of money,a compensate for
giving up liquidity of money
?Microeconomic knowledge,the time preference
for family is just the rate for firm,The real
rate is the difference between nominal rate
and expectation of the rate of inflation,
13.1 Simple Closed Model
?Simple closed model
?Aggregate demand,
0,0;0,0
);1,0(
e q u a t io n
?
?
?
??
?
?
?
?
?
?
??
?
?
?
??
???
i
L
L
Y
L
Lm o n e yfo rd e m a n d
r
I
I
Y
I
Iin v e s tm e n t
dY
dC
CM P C
GICZin c o m e
iY
rY
Y
：
：
：
：
13.1 Simple Closed Model
?Simple closed model
?Aggregate supply,
_
1
_
_
_
()
r e a l r a t e of infl a t i on
e x of
Y Y P
H
P
Y
YY
G D P gap
Y
H ge ne ral f unc t i on re l at i on
P
P
pe c t at i on of rat e i nf l at i on
?
?
?
?
?
?
??
?
?,；
,；
,；
,。
13.1 Simple Closed Model
?Simple closed model
?What is GDP gap,
?The GDP gap is the difference between real rate of
inflation and the expectation of
?H-function,
?Keynes school,H is a almost horizontal line。
?New-classical school,H is a vertical line。
Principle of Price
from,Yuan zhigang,Macroeconomics”p.320
P
t t t+1
A
Change in
price for long
run
13.1 Simple Closed Model
?Simple closed model
?Short run,P=constant,
?variables,Y,r,C,I,
?Long run,P=variables,
0??P
?P
13.1 Simple Closed Model
?Simple closed model
?Solution for short-term
?For expectation of
inflation is difficult
to describe,we presume
it is zero,So the
model can be expressed
as follow,
)(
),(
),()(
Y
YY
H
P
P
rYL
P
M
GrYIYCY
?
?
?
???
?
13.1 Simple Closed Model
?Simple closed model
?Solution for short-
term
?Without considering
the change of time,
the solution is based
on compared static
analysis,
dY
Y
H
dP
P
P
Pd
P
dP
P
M
dM
P
drLdYL
dGdrIdYIdYCdY
rY
rYr
'
)(
1
1
2
2
??
???
????
?
?
13.1 Simple Closed Model
?Simple closed model
?conclusion,
?Compared static analysis is to compare different
economy and different economic policies without
considering time,
13.1 Simple Closed Model
?Static solution to simple closed model
dY
Y
H
dP
P
P
Pd
P
dP
P
M
dM
P
drLdYL
dGdrIdYIdYCdY
rY
rYr
'
)(
1
1
2
2
??
???
????
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
??
?
?
?
?
?
?
?
??
?
?
? ??
dP
dM
dG
P
M
P
dr
dY
L
I
L
IC
r
r
Y
YY
2
0
1
0
01
1
13.1 Simple Closed Model
?Static solution to simple closed model
YrYYr
rr
r
LIICL
dP
P
MIdM
P
IdGL
dY
???
??
?
)1(
2
)(1
2
r
r
Y
YY
r
r
r
r
I
L
L
IC
dP
PL
MI
dM
PL
I
dG
dY
???
??
?
13.1 Simple Closed Model
? Static solution to
simple closed model
is feedback
ration,f.r,
)(1
2
r
r
Y
YY
r
r
r
r
I
L
L
IC
dP
PL
MI
dM
PL
I
dG
dY
???
??
?
)( r
r
Y
YY IL
LIC ??
13.1 Simple Closed Model
? Three multipliers,
? Fiscal policy
multiplier
? Monetary policy
multiplier
? Price multiplier
0
..1
0
..1
1
..1
1
2
?
?
?
?
?
?
?
?
?
?
rf
PL
MI
dP
dY
rf
PL
I
dM
dY
rfdG
dY
r
r
r
r
13.1 Simple Closed Model
? Comment on
economic policy
? The effect of
economic policy is
determined by the
f.r,;
。：；：；：
p o lic ym o n e t a r y t h eas s a m e t h eisp o lic y f is c a l of e f f ic ie n c y
p o lic y f is c a lt h a n e f f ic ie n t m o r e isp o lic y m o n e t a r y
p o lic ym o n e t a r y t h a n e f f ic ie n t m o r e isp o lic y f
th e
dM
dY
dG
dY
dM
dY
dG
dY
is c a l
dM
dY
dG
dY
?
?
?
13.1 Simple Closed Model
? The effects of price-level on aggregate demand
P
Y
AD
13.2 Static Solution to Simple
Closed Model
? The effects of price-level on aggregate demand
P
Y
AD
)( PdPMdMAD ?
13.2 Static Solution to Simple
Closed Model
? Analysis on the
stability of the system
e1
e0
LM’
IS
LM0
Y0 Y O
r
?Y
13.2 Static Solution to Simple
Closed Model
E
返回
LM1
IS
LM0
Y0 Y
O
r
e1 e0
?Y
? Analysis on the stability
of the system
13.2 Static Solution to Simple
Closed Model
E
返回
LM1
IS
LM0
Y0 Y
O
r
e0
?Y
? Analysis on the
stability of the
system
13.3 Concepts of Non-Walras
Equilibrium
?Difference between Keynesian
macroeconomics and traditional
microeconomics
?The object is not clearing market；
?Quantity adjustment but not price adjustment；
?Person has not perfect information and the
future is not determined,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?equilibrium
?Narrow sense,a equilibrium in a certain market,namely,
the demand equal the supply in the market,
?General sense,a series of variables in a economic
system,make the system in a static condition,The
equilibrium in general sense includes the Walras-equilibrium,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Disequilibrium
?In narrow sense,
?In general sense,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?Basic presumes,
?Monetary market,money is unique means to
exchange,
?There are H markets,each market is marked by h=1,
…,H
?Ph denotes price
?There are n persons,each is marked by i=1,…, n。
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?Basic presumes,
：
：
：
? ?
? ?
?
?
?
H
h
H
h
ihhihh
ih
ih
dpsp
s
d
1 1
0
0
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?If a person has no money before he involves in the
market,what he buy can not exceeds what he sell in
the market,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?The quantity of demand and exchange
?They are equal in Walras euilibrium
?They are not the same in non-Walras
equilibrium
：??
??
?
n
i
ih
n
i
ih sd
1
*
1
*
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?In Walras equilibrium,all prices are the equilibrium
prices,so the demand is equal the supply,
?When the prices are not the equilibrium prices and are
fixed for short-run,the demand is not equal the supply,
?The rationing schemes are a process that can generate a
certain quantity of exchange,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Two important natures,
Efficiency
Voluntary exchange
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
ihihih
ihihih
sss
ddd
~~
~
,
~
*
*
，?
?
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
)~m i n (
)
~
,m i n (
*
*
ihihih
ihihih
sss
ddd
，?
?
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
。，；，
ihihihih
ihihihih
ssdd
ssdd
~~
~~
**
**
??
??
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
],~m a x [* jjj YYY ?
13.3 Concepts of Non-Walras
Equilibrium
?The most ration of exchange
d*ih
dih
dih
0
13.3 Concepts of Non-Walras
Equilibrium
?The least ration of exchange
d*ih
dih
dih
0
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Nature 2,efficiency
?There are no friction in a market,and the
demanders and suppliers can not be
restricted in the same time,
?The direct results of the nature is,short-
side rule”,
)~,~mi n (** hhhh SDSD ??
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Nature 2,efficiency
?If the market is so large that the person who
demand and the person who supply can not meet
with each other,the efficiency of rationing
schemes can be lost,
?The traditional planned economics is a good
example,which the, short-side rule” is not meet,
Chapter 13 Slide 41
Chapter 13
The End
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Chapter 13
Compared Static Analysis of
Aggregate Demand &
Disequilibrium Theory
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
Content
? A simple closed model
? The static solution of simple model
? Basic concepts of disequilibrium theory
13.1 Simple Closed Model
?Simple closed model
?without import and export。
?The model as follow,
YZme q u i l ib r i u
Y
YY
H
P
P
r a t e
iYL
P
M
o n d i t i o n is
rYIIn v e s t m e n t
YCCo n s u m p t i o n
GICZi n c o m e
?
?
?
?
?
?
?
???
?
?
：
：
：
：
：
：
c o n d i t i o n s
)(p r i c e of i n c r e a s e t h eof
),(me q u il i b r i u m a r k e t ' f i n a n c i a l of c
),(f u n c t i o n i
)(f u n c t i o n c
e q u a t i o n
.
?
13.1 Simple Closed Model
?Simple closed model
?We can know the characters of some macroeconomic
variables based on microeconomics,
???
?
?
?
??
?
?
?
?
?
?
??
?
?
?
??
???
irt h e
i
L
L
Y
L
Ld e m a n d
r
I
I
Y
I
Ii n v e s t m e n t
dY
dC
CM P C
GICZi n c o m e
iY
rY
Y
：
：
：
：
：
r a t e r e a l a n d r a t e n o m i n a lb e t w e e n r e l a t i o n
0,0m o n e y of;0,0
);1,0(
e q u a t io n
13.1 Simple Closed Model
?Simple closed model
?The nature of rate
?General knowledge,rate is a opportunity cost of
lending,a kind price of money,a compensate for
giving up liquidity of money
?Microeconomic knowledge,the time preference
for family is just the rate for firm,The real
rate is the difference between nominal rate
and expectation of the rate of inflation,
13.1 Simple Closed Model
?Simple closed model
?Aggregate demand,
0,0;0,0
);1,0(
e q u a t io n
?
?
?
??
?
?
?
?
?
?
??
?
?
?
??
???
i
L
L
Y
L
Lm o n e yfo rd e m a n d
r
I
I
Y
I
Iin v e s tm e n t
dY
dC
CM P C
GICZin c o m e
iY
rY
Y
：
：
：
：
13.1 Simple Closed Model
?Simple closed model
?Aggregate supply,
_
1
_
_
_
()
r e a l r a t e of infl a t i on
e x of
Y Y P
H
P
Y
YY
G D P gap
Y
H ge ne ral f unc t i on re l at i on
P
P
pe c t at i on of rat e i nf l at i on
?
?
?
?
?
?
??
?
?,；
,；
,；
,。
13.1 Simple Closed Model
?Simple closed model
?What is GDP gap,
?The GDP gap is the difference between real rate of
inflation and the expectation of
?H-function,
?Keynes school,H is a almost horizontal line。
?New-classical school,H is a vertical line。
Principle of Price
from,Yuan zhigang,Macroeconomics”p.320
P
t t t+1
A
Change in
price for long
run
13.1 Simple Closed Model
?Simple closed model
?Short run,P=constant,
?variables,Y,r,C,I,
?Long run,P=variables,
0??P
?P
13.1 Simple Closed Model
?Simple closed model
?Solution for short-term
?For expectation of
inflation is difficult
to describe,we presume
it is zero,So the
model can be expressed
as follow,
)(
),(
),()(
Y
YY
H
P
P
rYL
P
M
GrYIYCY
?
?
?
???
?
13.1 Simple Closed Model
?Simple closed model
?Solution for short-
term
?Without considering
the change of time,
the solution is based
on compared static
analysis,
dY
Y
H
dP
P
P
Pd
P
dP
P
M
dM
P
drLdYL
dGdrIdYIdYCdY
rY
rYr
'
)(
1
1
2
2
??
???
????
?
?
13.1 Simple Closed Model
?Simple closed model
?conclusion,
?Compared static analysis is to compare different
economy and different economic policies without
considering time,
13.1 Simple Closed Model
?Static solution to simple closed model
dY
Y
H
dP
P
P
Pd
P
dP
P
M
dM
P
drLdYL
dGdrIdYIdYCdY
rY
rYr
'
)(
1
1
2
2
??
???
????
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
??
?
?
?
?
?
?
?
??
?
?
? ??
dP
dM
dG
P
M
P
dr
dY
L
I
L
IC
r
r
Y
YY
2
0
1
0
01
1
13.1 Simple Closed Model
?Static solution to simple closed model
YrYYr
rr
r
LIICL
dP
P
MIdM
P
IdGL
dY
???
??
?
)1(
2
)(1
2
r
r
Y
YY
r
r
r
r
I
L
L
IC
dP
PL
MI
dM
PL
I
dG
dY
???
??
?
13.1 Simple Closed Model
? Static solution to
simple closed model
is feedback
ration,f.r,
)(1
2
r
r
Y
YY
r
r
r
r
I
L
L
IC
dP
PL
MI
dM
PL
I
dG
dY
???
??
?
)( r
r
Y
YY IL
LIC ??
13.1 Simple Closed Model
? Three multipliers,
? Fiscal policy
multiplier
? Monetary policy
multiplier
? Price multiplier
0
..1
0
..1
1
..1
1
2
?
?
?
?
?
?
?
?
?
?
rf
PL
MI
dP
dY
rf
PL
I
dM
dY
rfdG
dY
r
r
r
r
13.1 Simple Closed Model
? Comment on
economic policy
? The effect of
economic policy is
determined by the
f.r,;
。：；：；：
p o lic ym o n e t a r y t h eas s a m e t h eisp o lic y f is c a l of e f f ic ie n c y
p o lic y f is c a lt h a n e f f ic ie n t m o r e isp o lic y m o n e t a r y
p o lic ym o n e t a r y t h a n e f f ic ie n t m o r e isp o lic y f
th e
dM
dY
dG
dY
dM
dY
dG
dY
is c a l
dM
dY
dG
dY
?
?
?
13.1 Simple Closed Model
? The effects of price-level on aggregate demand
P
Y
AD
13.2 Static Solution to Simple
Closed Model
? The effects of price-level on aggregate demand
P
Y
AD
)( PdPMdMAD ?
13.2 Static Solution to Simple
Closed Model
? Analysis on the
stability of the system
e1
e0
LM’
IS
LM0
Y0 Y O
r
?Y
13.2 Static Solution to Simple
Closed Model
E
返回
LM1
IS
LM0
Y0 Y
O
r
e1 e0
?Y
? Analysis on the stability
of the system
13.2 Static Solution to Simple
Closed Model
E
返回
LM1
IS
LM0
Y0 Y
O
r
e0
?Y
? Analysis on the
stability of the
system
13.3 Concepts of Non-Walras
Equilibrium
?Difference between Keynesian
macroeconomics and traditional
microeconomics
?The object is not clearing market；
?Quantity adjustment but not price adjustment；
?Person has not perfect information and the
future is not determined,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?equilibrium
?Narrow sense,a equilibrium in a certain market,namely,
the demand equal the supply in the market,
?General sense,a series of variables in a economic
system,make the system in a static condition,The
equilibrium in general sense includes the Walras-equilibrium,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Disequilibrium
?In narrow sense,
?In general sense,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?Basic presumes,
?Monetary market,money is unique means to
exchange,
?There are H markets,each market is marked by h=1,
…,H
?Ph denotes price
?There are n persons,each is marked by i=1,…, n。
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?Basic presumes,
：
：
：
? ?
? ?
?
?
?
H
h
H
h
ihhihh
ih
ih
dpsp
s
d
1 1
0
0
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Frame of market
?If a person has no money before he involves in the
market,what he buy can not exceeds what he sell in
the market,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?The quantity of demand and exchange
?They are equal in Walras euilibrium
?They are not the same in non-Walras
equilibrium
：??
??
?
n
i
ih
n
i
ih sd
1
*
1
*
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?In Walras equilibrium,all prices are the equilibrium
prices,so the demand is equal the supply,
?When the prices are not the equilibrium prices and are
fixed for short-run,the demand is not equal the supply,
?The rationing schemes are a process that can generate a
certain quantity of exchange,
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Two important natures,
Efficiency
Voluntary exchange
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
ihihih
ihihih
sss
ddd
~~
~
,
~
*
*
，?
?
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
)~m i n (
)
~
,m i n (
*
*
ihihih
ihihih
sss
ddd
，?
?
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing Schemes
?Voluntary exchange
。，；，
ihihihih
ihihihih
ssdd
ssdd
~~
~~
**
**
??
??
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
],~m a x [* jjj YYY ?
13.3 Concepts of Non-Walras
Equilibrium
?The most ration of exchange
d*ih
dih
dih
0
13.3 Concepts of Non-Walras
Equilibrium
?The least ration of exchange
d*ih
dih
dih
0
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Nature 2,efficiency
?There are no friction in a market,and the
demanders and suppliers can not be
restricted in the same time,
?The direct results of the nature is,short-
side rule”,
)~,~mi n (** hhhh SDSD ??
13.3 Concepts of Non-Walras
Equilibrium
?Basic concepts of non-Walras equilibrium
?Rationing schemes
?Nature 2,efficiency
?If the market is so large that the person who
demand and the person who supply can not meet
with each other,the efficiency of rationing
schemes can be lost,
?The traditional planned economics is a good
example,which the, short-side rule” is not meet,
Chapter 13 Slide 41
Chapter 13
The End
0
10
20
30
40
90 91 92 93 94 95 96 97 98 99 00
