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Chap 23
Chap 23

... don’t yet have the background to appreciate all the details that go into the aggregate demand and aggregate supply curves. But they are able to grasp the basic purpose of the model. Your goal at this point in the course is to help them understand the components of the model intuitively and to put th ...
MacroPractice
MacroPractice

... 10. The difference between the new classical theory and the new Keynesian theory is the assumption of a. rational expectations. b. adaptive expectations. c. complete flexibility of wages and prices in the short run. d. a and c e. b and c 11. If expectations are formed rationally, wages and prices ar ...
Chapter 21 Stabilization Policy with Backward
Chapter 21 Stabilization Policy with Backward

... Why do fluctuations in the rate of inflation imply a social welfare loss, as postulated in (1)? The answer may seem straightforward: In our AS-AD model a fluctuating rate of inflation means that people generally fail to anticipate the rate of inflation correctly. When households and firms underestim ...
Preview - American Economic Association
Preview - American Economic Association

... meaning that the supply curve is horizontal, that is a simplifying assumption – not in fact made by Keynes (1936) - to avoid bringing in, at an introductory stage of the analysis, the effects of price changes.2 But the essential point with respect to supply is that (whether or ...
A Comparison of Twelve Macroeconomic Models
A Comparison of Twelve Macroeconomic Models

... economy. Our results indicate that none of the seven simple policy rules examined is robust to model uncertainty, in that no single rule performs well in all models. In fact, our results show that the performance of some of the simple rules, particularly interest-rate-smoothing rules and rules that ...
Unemployment - McGraw Hill Higher Education
Unemployment - McGraw Hill Higher Education

... because they’re technically out of the labor force (see cartoon). The Labor Department estimates that over 400,000 individuals fell into this uncounted class of discouraged workers in 2003. In years of higher unemployment, this number jumps ...
A small model of the UK economy - Office for Budget Responsibility
A small model of the UK economy - Office for Budget Responsibility

... That lagged output improves the fit with the data is important, but whether one accepts the habit formation story, the rule of thumb hypothesis or simply assumes that households are less forward-looking than is often suggested, is less important for the specification of the IS relation. In empirical ...
MacroPractice
MacroPractice

... 57. What type of relationship exists between the marginal propensity to consume (MPC) and the multiplier? Explain why this relationship exists. 58. Using the concept of the multiplier, explain in detail how college students flocking to beach towns for spring break can positively impact the beach tow ...
(2) Developments in the Natural Rate of Interest in Japan
(2) Developments in the Natural Rate of Interest in Japan

Wages, Prices, and Employment: Von Mises and the
Wages, Prices, and Employment: Von Mises and the

... implied that unemployment was the result of real wage rates being too high (greater than their equilibrium level), suggesting that the solution to high levels of unemployment was a reduction in money (and real) wage rates.4 As a generalized explanation of the source of and remedy for unemployment, t ...
The Economics of Money, Banking, and Financial
The Economics of Money, Banking, and Financial

... A) The ECB follows monetary targeting. B) The ECB follows inflation targeting. C) The ECB has a hybrid strategy with elements of both monetary targeting and inflation targeting. D) The ECB has a Fed-like "just do it" approach. Answer: C Ques Status: New 6) Which of the following is an advantage to m ...
Chapter 12
Chapter 12

... Which of the following will cause the short-run aggregate supply curve to shift to the right? a. ...
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Some Monetary Facts

The Great Inflation in the United States and the United Kingdom
The Great Inflation in the United States and the United Kingdom

... views of the economy. Such an approach has been pursued by Romer and Romer (2002, 2004), Orphanides (2003), and others in the study of U.S. 1970s policymaking, and is continued in this paper. The emphasis that this approach gives to the importance of policymakers’ views also brings the study of the ...
an investigation of the relationship between inflation rates in kenya
an investigation of the relationship between inflation rates in kenya

... boost when inflation is at high constant rate while they fall when expected inflation rate rises. However, Fama and Schwert (1977) gave an idea of negative relationship between stock returns and Inflation (both expected and unexpected). On the other hand Modigliani and Cohn (1979) in the Inflation I ...
Mankiw 5/e Chapter 11: Aggregate Demand II
Mankiw 5/e Chapter 11: Aggregate Demand II

Real Fluctuations at the Zero Lower Bound
Real Fluctuations at the Zero Lower Bound

... impact of history-dependence, I calibrate and solve a general-equilibrium model with nominal price rigidity and a zero lower bound constraint on the central bank’s nominal policy rate. If monetary policy continues to respond to the economy, government spending multipliers can be smaller than one and ...
Chapter 5 PPT
Chapter 5 PPT

...  Initial equilibrium is at E where AD and AS intersect (goods and money market equilibrium)  Assume an increase in AD, which shifts AD to ...
Chapter 1: Introduction
Chapter 1: Introduction

... Second, we examine in more detail the international side. We examine the effects of changes in the economy’s equilibrium on international economic variables, and the effects of changes abroad on the domestic economy’s equilibrium. ...
Inflation, Its Causes and Cures
Inflation, Its Causes and Cures

... equipment (e.g., in the railroads) entailing waste, slower growth, and lower average real wages are the unavoidable consequences. ...
A Classical View of the Business Cycle
A Classical View of the Business Cycle

answer key - U of L Personal Web Sites
answer key - U of L Personal Web Sites

... 20. Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold? A) Price of exercise bikes decreases and quantity so ...
Chapter 7
Chapter 7

... long-run equilibrium. Long-run equilibrium occurs where the AD and LAS curves intersect and results when the money wage has adjusted to put the SAS curve through the long-run equilibrium point. ...
Comprehensive Assessment: Developments in Economic Activity
Comprehensive Assessment: Developments in Economic Activity

... by the decline in the unemployment rate and the narrowing output gap, which currently stands at about 0 percent, or the long-term average. Third, on the price front, the real economy, the output gap has improved to around 0 percent, which is the long-term average, and the unemployment rate has decli ...


... demand is described by the quantity equation. Output and the price level are determined by aggregate supply and demand, and the adjustment of wages is responsible for the dynamics of the response of the system to the shock. Firms hire as much labor as they want at the going nominal wage and supply o ...
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Phillips curve



In economics, the Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result in an economy. Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of inflation.While there is a short run tradeoff between unemployment and inflation, it has not been observed in the long run. In 1968, Milton Friedman asserted that the Phillips Curve was only applicable in the short-run and that in the long-run, inflationary policies will not decrease unemployment. Friedman then correctly predicted that, in the upcoming years after 1968, both inflation and unemployment would increase. The long-run Phillips Curve is now seen as a vertical line at the natural rate of unemployment, where the rate of inflation has no effect on unemployment. Accordingly, the Phillips curve is now seen as too simplistic, with the unemployment rate supplanted by more accurate predictors of inflation based on velocity of money supply measures such as the MZM (""money zero maturity"") velocity, which is affected by unemployment in the short but not the long term.
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