Demand of all macroeconomic subjects of the economy. Main subjects of macroeconomics
1. Aggregate demand in macroeconomics is:
a) Government spending and investment demand of enterprises.
b) Household demand and net exports.
c) Demand of households and investment demand of enterprises.
d) Demand of all macroeconomic subjects of the economy.
e) Demand of households and the state.
2. The negative slope of the AD curve is explained by the effects:
a) Wealth.
b) Feedback.
c) Substitutions.
d) Interest rate.
e) Import purchases.
3. What, according to J.M. Keynes, is the main instrument for maintaining macroeconomic equilibrium:
a) Household expenditures.
b) Gross investment.
c) Government spending.
d) Net exports.
e) All answers are correct.
4. Keynesian segment on the aggregate supply curve AS:
a) Has a positive slope.
b) Has a negative slope.
c) Represented by a vertical line.
d) Represented by a horizontal line.
e) All answers are incorrect.
5. The classic segment of the aggregate supply curve AS is characterized by:
a) Increase in production volume.
b) Invariance of prices.
c) Decrease in production volume.
d) Achieving full employment.
d) Increase in prices.
Topic 10. Cyclicality of a market economy.
Macroeconomic dynamics
1. What is the cyclical nature of economic development (choose the most correct answer)?
a) Periodic downturns in business activity.
b) Periodic increases in business activity.
c) Periodic fluctuations in investment demand.
d) Fluctuations in economic conditions that are periodic in nature.
e) All answers are incorrect.
2. A person who loses his job due to a downturn in the economy falls into the category of unemployed people covered by:
a) Seasonal unemployment.
b) Frictional form of unemployment.
c) Structural form of unemployment.
d) Hidden unemployment.
d) Cyclical form of unemployment.
3. The Phillips curve characterizes:
a) The degree of inequality in the personal distribution of national income.
b) The relationship between the interest rate and the money supply in circulation.
c) The relationship between the unemployment rate and the inflation rate.
d) The relationship between tax rates and the volume of tax revenues.
e) The relationship between full employment and the natural rate of unemployment.
4. Stagflation is characterized by:
a) Shortage of goods and services.
b) Economic growth, lower prices and unemployment.
c) Stagnation in production, rising prices and unemployment.
d) Increasing the level of employment.
d) Constant increase in the price of the consumer basket.
5. Intensive factors of economic growth include:
a) Scientific and technological progress.
b) Involvement of additional resources in production.
c) Improvement of equipment and production technology.
d) Improving organization and stimulating labor.
e) Increasing labor productivity.
The need for a general model. The consequences of the forced liberalization of economic activity in Russia were reflected in the state of aggregate supply and demand: liberalization of prices and the elimination of shortages of consumer goods (including through imports) led to the redistribution of household funds in favor of current consumption at the expense of previously accumulated savings.
Structural restructuring of the economy in the process of liberalization of economic life, associated, in particular, with changes in the structure of demand and relative prices, in a certain way influenced the state of aggregate supply. For example, due to the mismatch in the structure of production factors employed in different industries, it was impossible to completely redistribute them in accordance with new needs from declining industries to promising ones. In this regard, not all of the production potential involved in the pre-perestroika period could be used after economic liberalization. Factors such as the severance of a number of production ties and the reduction of trade relations with the former Soviet republics and CMEA partners also acted to reduce the volume of potential output (long-term aggregate supply). The phenomenon of “hysteresis” - the loss of part of the production potential, due to the fact that the decline in production turned out to be quite stable and long-term, was quite clearly manifested in the transition economy of Russia. Model AD-AS(with a certain degree of conditionality) can be used to interpret and analyze the processes occurring in the transition economies of Russia and other countries.
The long-term depressed state of the economy led to a decrease in real incomes of the bulk of the population, which caused a subsequent fall in aggregate demand. The decline in investment activity in the economy also had an effect in the same direction, which reduced the investment component of aggregate demand. Graphically this is illustrated by the left shift of the curve A.D. which further intensifies the decline, at least in the short term, although it slightly reduces the price level or slows down inflation (if prices are downward inelastic) [ 1 ].
So the model AD-AS can be used both to illustrate and to assess the prospects for events in transition economies in all cases when aggregate supply and demand begin to work in accordance with the laws of the emerging market mechanism.
Aggregation- consolidation of economic indicators by combining them into a single group. Aggregate indicators represent generalized, synthetic measures that combine many private indicators in one general indicator. For example, the indicator of industrial production in a country represents the total value of production volumes of all industrial enterprises. Aggregation is carried out through summation, grouping or other methods of reducing particular indicators into generalized ones. The basis of the macroeconomics method is aggregation, which means the combination of similar economic entities and objects into the largest possible groups. For example, during aggregation, all consumers are combined into the household sector. The aggregation of objects of economic relations leads to the fact that all individual goods and means of production are transformed into a single good, acting both as an object of consumption and as a means of production.
Aggregation markets is carried out with the aim of identifying the patterns of functioning of each of them, namely: studying the peculiarities of the formation of supply and demand and the conditions of their equilibrium in each of the markets; determining the equilibrium price and equilibrium volume based on the relationship between supply and demand; analysis of the consequences of changes in equilibrium in each of the markets.
Market aggregation makes it possible to identify four macroeconomic markets:
- 1) market for goods and services (real market);
- 2) financial market (market for financial assets);
- 3) market of economic resources;
- 4) foreign exchange market.
To obtain an aggregated market of goods and services (goods market) we must abstract from the entire variety of goods produced by the economy and highlight the most important patterns of the functioning of this market, i.e. patterns of formation of demand and supply of goods and services. The relationship between supply and demand allows us to obtain the equilibrium price level (price level) for goods and services and the equilibrium volume of their production (output). The market for goods and services is also called the real market (real market), since real assets (real values - real assets). Aggregation, in addition to combining subjects and objects into large groups, also means summing up their characteristics. For example, summing the value of all goods produced in an economy gives the gross product.
The advantage of aggregation is the maximum simplification of the subject, which allows you to detect and analyze those of its properties that cannot be noticed with a large number of elements in the analyzed system.
Macroeconomics is a branch of economic theory in which economic problems are studied at the level of the national economy as a whole. The term “macroeconomics” itself is used relatively recently, but macroeconomic analysis arose almost simultaneously with economic science.
Already in the “Economic Table” by F. Quesnay (1694-1774) a macroeconomic model of economic life is presented. Elements of macroeconomic analysis are found in the works of A. Smith and D. Ricardo. K. Marx widely used the macroeconomic approach in his theory.
In the 20th century J. Keynes played an outstanding role in the development of macroeconomic analysis. Macroeconomics as an independent scientific discipline was formed after the publication of J. Keynes’s book “The General Theory of Employment, Interest and Money” in 1936. It presented a system of concepts and categories new to economic science, which the author used as tools for functional macroeconomic analysis.
There is no insurmountable gap between macro and micro economics. Macroeconomic analysis uses the basic concepts of microeconomics - the law of supply and demand and the theory of economic equilibrium. However, there are significant differences in tasks, goals and tools.
Macroeconomics studies general economic processes as a whole, i.e. conditions and results of activity in the market of all subjects of economic relations. Economic phenomena are considered by macroeconomics in their totality. The results of joint actions of participants in economic relations can be both positive and negative for individual agents and for the system as a whole. In this case, the state is called upon to adjust economic relations. Government actions aimed at stabilizing and developing economic relations are called economic policy.
The state establishes the “rules of the game” in the national market: it determines tax policy, tariff rates, quotas, subsidies, as well as the laws according to which participants in economic relations operate. The state acts as one of the market subjects, i.e. an active party defending national interests. In the macroeconomic system, the state performs another function - the creation (supply) of money necessary to meet the needs of households, firms and the state itself.
With a macroeconomic approach, the national economy can be represented as a single market. Therefore, macroeconomic analysis involves the study of mass phenomena and processes, which in their totality reflect the relationships that develop in the market and affect all phases and spheres of production.
Consideration of general relationships and interdependencies within the economic system as a whole requires an appropriate aggregation of economic categories, i.e. use of aggregate indicators.
The process of social production and reproduction presupposes economic equilibrium not only at the micro, but also at the macro level. The forms of this equilibrium are diverse: it is the correspondence between resources and needs, production and consumption, between supply and demand, between material and financial flows.
It is customary to distinguish three types market economic equilibrium : partial, general at the microeconomic level, general at the macroeconomic level. Partial equilibrium is the equilibrium in a particular market for a given product. General microeconomic equilibrium- this is the equilibrium in a single local market, regional market for the entire set of goods sold on it.
General macroeconomic equilibrium- this is the equilibrium in all markets that are part of the economic system of the entire country as a whole in each given period of time. This balance is an indicator of the state of the economic system as a single integral organism, which includes an infinite variety of connections and interrelations.
They distinguish perfect macroeconomic equilibrium, which assumes an optimal relationship between connections and proportions, and real equilibrium, which develops taking into account real internal and external factors affecting the system as a whole.
Macroeconomic equilibrium can be characterized by aggregate demand and aggregate supply.
Aggregate demand- this is the real volume of national production that all consumers (population, enterprises and governments) are willing to buy at a particular price level. Aggregate demand, in contrast to market demand, consists of four main components: the first is consumer demand for goods and services; the second is the investment demand of firms; the third is government procurement; the fourth is net exports, i.e. difference between export and import.
Aggregate offer- this is the value of the product actually produced by all producers in the economic system at a certain price level.
The intersection of the aggregate demand and aggregate supply curves determines the equilibrium volume of output and the price level in the economy and characterizes the point of general macroeconomic equilibrium.
The problem of macroeconomic equilibrium is one of the most acute and controversial in economic science. It is necessary to name the most important prerequisites for general equilibrium in the economy. Equilibrium implies the correspondence of social goals and social opportunities. The goals and priorities of social development change, the needs for resources also change, and consequently, changes in proportions occur, and the need arises to ensure a new equilibrium state.
Economic equilibrium presupposes a state of the economy when all the economic resources of the country are used. Equilibrium means that the overall structure of production is brought into line with the structure of consumption.
Economic equilibrium is the coordinated, equilibrium development of all markets, i.e. markets for goods and services, labor, money, capital. It is achieved through the interaction and mutual adaptation of all spheres, elements, and factors of production.
In modern economic science, there are two main concepts on the issue of macroeconomic equilibrium: neoclassical and Keynesian.
The neoclassical school considers a model of general economic equilibrium under conditions of perfect competition in the short term. The main thesis of this concept states: the supply of goods itself creates its own demand, the production volume of products automatically ensures the receipt of such income that is sufficient for the full sale of all goods.
Followers of this theory even today argue that a market economy does not require government regulation of aggregate demand and aggregate supply. A market economy is a self-regulating system that automatically ensures equality of income and expenses at full employment. The instruments of self-regulation are prices, wages, and interest rates, the fluctuations of which equalize supply and demand.
The Keynesian school believes that the economy does not develop smoothly, and wages, prices, and interest rates are not such flexible tools that can quickly lead to a match between supply and demand at the macroeconomic level. Wages based on official legislation and the contractual system may not decrease, and unemployment may rise. During a depression, a fall in aggregate demand will lead to a fall in output and a reduction in the demand for labor.
Which of the macroeconomic equilibrium options is more realistic? Using positive analysis, possible states of macroeconomic equilibrium can be written off. Statesmen and governments can solve specific macroeconomic problems and implement specific programs in the unique conditions of each individual country.
Main macroeconomic actors
Definition 1
The main subjects of macroeconomics are individual economic sectors, which are distinguished on the basis of the specific role assigned to each of them in the functioning of the economy.
The main macroeconomic actors are:
- Households, including all families of the state. This sector directs its activities to meet the needs of society.
- The business sector, which unites the totality of all firms that are registered in the country and whose purpose of activity is related to making a profit.
- Public sector institutions and institutions that are responsible for the production of social benefits make various payments, redistribute the country's national income between sectors of the economy, ensure the supply of funds to the national economy and implement measures to regulate foreign economic relations. When carrying out economic activities, the state, unlike other subjects of macroeconomics, relies not on its own, but on national interests. To produce public goods, the state needs to purchase means of production from entrepreneurs. This group of costs, together with the cost of wages for civil servants, constitutes government spending. The source of their coverage is taxes paid by households and entrepreneurs. In addition, government expenses include benefits and pensions for households, as well as subventions and grants to entrepreneurs. These expenses are often called negative taxes. The most important function of the state can be called the supply of money.
- The foreign sector is a set of economic entities that have a permanent location outside the borders of a given country. The foreign sector interacts with subjects of the national economy through foreign economic relations and mutual exchange of capital, national currency, goods or services.
Economic activity of macroeconomic subjects
Economic activity of households is manifested in the following:
- supply of means of production that are privately owned;
- consumption of part of the income received through the acquisition of consumer goods;
- saving the remaining income for the purpose of purchasing securities and real estate.
The economic activity of entrepreneurship is formed by the demand for means of production, the supply of consumer goods and the expansion of investment.
Note 1
The state manifests its economic activity through the acquisition of goods for state needs, collection of taxes, etc.
The economic activity of the foreign sector is expressed through the mutual exchange of goods and services, as well as capital and national currency.
Interaction of macroeconomic subjects in the market
Almost all relationships between economic entities are formed during their interaction in the following types of markets:
- the goods market, which unites numerous markets where final goods and services produced in the country are sold;
- the capital and securities market, which is represented at the macro level by short-term government bonds;
- the money market, which characterizes all transactions in the exchange of national currency for various types of securities;
- the labor market, where labor as such is bought and sold (without distinguishing its individual types);
- market for machinery and equipment (real capital);
- an international market within which individual national currencies are exchanged.
Note 2
All major macroeconomic actors interact with others through lending and borrowing instruments.
4.2 Aggregate demand and aggregate supply
In order to better understand the problem of macroeconomic equilibrium, consider aggregate demand and aggregate supply (AD-AS model).
Aggregate demand (AD - aggregate demand) is the sum of all types of demand, or the total demand for all final products and services produced in society. Aggregate demand reflects the relationship between the price level and the volume of output that consumers are willing to buy at a given price level. Graphically, aggregate demand is shown in Fig. 4.1.
Rice. 4.1. Aggregate demand curve
Aggregate demand includes the following main components:
Demand for consumer goods and services (C). When the price level increases, consumer demand decreases, i.e. the purchasing power of accumulated income decreases;
Demand for investment goods (I) - An increase in prices leads to an increase in the interest rate as the demand for money increases. An increase in interest rates reduces the volume of real planned investments;
Demand for goods and services from the government (G), so-called government procurement. An increase in the price level in the country reduces government purchases, since the allocation of funds from the budget for government purchases is carried out in fixed value terms;
Net exports are the difference between exports and imports (X). As the price level in a given country increases, the volume of its export operations decreases, and the level of imports increases, i.e. goods produced in a given country become more expensive than foreign ones.
Thus, aggregate demand can be expressed by the formula:
If you look at formula (4.1) more closely, you can see that it corresponds to formula (2.1) for calculating GDP by expenditure, which we discussed in Chapter 2.
All the main components are inversely related to the price level, which determines the negative slope of the AD curve. Thus, demand at the macro level follows the same pattern as at the micro level: it will fall when prices rise and increase when they fall. This dependence follows from the equation of the quantity theory of money:
From formula (4.2) it follows that the higher the price level P, the lower (subject to a fixed supply of money M and the velocity of its circulation V) the quantity of goods and services for which Y is in demand.
The inverse relationship between the amount of aggregate demand and the price level is associated with:
With the interest rate effect (Keynes effect) - as prices rise, the demand for money increases. With a constant supply of money, the interest rate increases, and as a result, demand from economic agents using loans decreases, and aggregate demand decreases;
The wealth effect (Pigou effect) - rising prices reduces the real purchasing power of accumulated financial assets, making their owners poorer, resulting in a decrease in the volume of import purchases, consumption and aggregate demand;
The effect of import purchases is that rising prices within the country while import prices remain unchanged shifts part of the demand to imports. tailor goods, resulting in reduced exports and reduced aggregate demand in the country.
Along with price factors, aggregate demand is influenced by non-price factors. Their action leads to a shift of the AD curve to the right or left.
Non-price factors of aggregate demand include:
Factors influencing consumer expenditures of households: consumer welfare, taxes, expectations, since optimistic economic expectations of consumers and firms increase the planned volume of consumed national product;
Factors affecting the investment costs of firms: interest rates, preferential lending, opportunities for obtaining subsidies;
Changes in government policies governing government spending; in addition, aggregate demand is affected by changes in the volume of money supply in the economy made by the central bank and an increase or decrease in the level of taxation;
Changes in the global economy that affect net exports: fluctuations in exchange rates, prices on the world market, economic growth in other countries, also affect aggregate demand.
Changes in aggregate demand are shown in Fig. 4.1. A shift of the straight line AD to the right reflects an increase in aggregate demand, and to the left - a decrease.
Aggregate supply (AS - aggregate supply) is all final products (in value terms) produced (offered) in society. It shows the relationship between the value of the real national product and the price level at which the product is produced.
Graphically, the relationship between the price level and output is depicted as an aggregate supply curve.
The nature of the AS curve is also influenced by price and non-price factors. As with the AD curve, price factors change the quantity of aggregate supply and cause movement along the AS curve. Non-price factors cause the curve to shift to the left or right. Non-price supply factors include changes in technology, resource prices and volumes, taxation of firms and the structure of the economy. Thus, an increase in energy prices will lead to an increase in costs and a decrease in supply (the AS curve shifts to the left). A high harvest means an increase in aggregate supply (a shift of the curve to the right). An increase or decrease in taxes respectively causes a decrease or increase in aggregate supply.
The shape of the supply curve is interpreted differently in classical and Keynesian schools of economics. In the classical model, the economy is considered in the long term. This is the period during which nominal values (prices, nominal wages, nominal interest rates) change quite strongly under the influence of market fluctuations and are “flexible”. Real values (volume of output, level of employment, real interest rate) change slowly and are taken as constant. The economy operates at full capacity with full employment of the means of production and labor resources. The aggregate supply curve AS appears as a vertical line, reflecting the fact that under these conditions it is impossible to achieve further increases in output, even if this is stimulated by an increase in aggregate demand. Its growth in this case causes inflation, but not an increase in GNP or employment. The classic AS curve characterizes the natural (potential) volume of production (GNP), i.e. the level of GNP at the natural rate of unemployment, or the highest level of GNP that can be created given the technologies, labor and natural resources available in society without increasing the rate of inflation.
The aggregate supply curve can move left and right depending on the development of production potential, productivity, production technology, i.e. those factors that influence the movement of the natural level of GNP.
The Keynesian model looks at the economy in the short run. This is a period (lasting from one to three years) that is necessary to equalize prices for final products and factors of production. During this period, entrepreneurs can make a profit as a result of excess prices for final products while prices for factors of production, primarily labor, lag behind. In the short term, nominal values (prices, nominal wages, nominal interest rates) are considered “fixed”. Real values (volume of output, level of employment) are “flexible”. This model assumes an underemployed economy. Under such conditions, the aggregate supply curve AS is either horizontal or upward sloping. The horizontal line segment reflects a deep recession in the economy, underutilization of production and labor resources. The expansion of production in such a situation is not accompanied by an increase in production costs and prices for resources and finished products. The upward segment of the aggregate supply curve reflects a situation where an increase in national output is accompanied by a slight increase in prices. This may occur due to the uneven development of individual industries, the use of less efficient resources to expand production, which increases the level of costs and prices for final products in conditions of their growth.
Rice. 4.2. Aggregate Supply Curve
Both classical and Keynesian concepts describe reproductive situations that are quite possible in reality. Therefore, it is customary to combine the three forms of the supply curve into one line, which has three segments: Keynesian (horizontal), intermediate (ascending) and classical (vertical).
(Materials are based on: E.A. Maryganova, S.A. Shapiro. Macroeconomics. Express course: textbook. - M.: KNORUS, 2010. ISBN 978-5-406-00716-7)