The liquidity effect
... so that the marginal product of labour divided by the nominal interest rate equals the real wage rate. The reason the nominal interest rate enters into the labour demand condition is that labour is a cash in advance good, and so a borrowing cost is incurred for every person hired. Therefore when the ...
... so that the marginal product of labour divided by the nominal interest rate equals the real wage rate. The reason the nominal interest rate enters into the labour demand condition is that labour is a cash in advance good, and so a borrowing cost is incurred for every person hired. Therefore when the ...
Ch21 - 山东大学课程中心
... 3. What happens to the position of the LM curve if the Fed decides that it will decrease the money supply to fight inflation and if, at the same time, the demand for money falls? 4. "An excess demand for money resulting from a rise in the demand for money can be eliminated only by a rise in the inte ...
... 3. What happens to the position of the LM curve if the Fed decides that it will decrease the money supply to fight inflation and if, at the same time, the demand for money falls? 4. "An excess demand for money resulting from a rise in the demand for money can be eliminated only by a rise in the inte ...
Long run equilibrium
... Resource prices, interest rates rise SRAS shifts left Return to full employment, normal profits Price level permanently higher ...
... Resource prices, interest rates rise SRAS shifts left Return to full employment, normal profits Price level permanently higher ...
Inflation is
... Drawing on the analysis of Friedman and Phelps, rational expectations (which is attributed to Lucas, Sargent and Barro) claims that the short-run cost of reducing inflation will be related to the speed with which inflationary expectations adjust. Rational expectations implies that the sacrifice rati ...
... Drawing on the analysis of Friedman and Phelps, rational expectations (which is attributed to Lucas, Sargent and Barro) claims that the short-run cost of reducing inflation will be related to the speed with which inflationary expectations adjust. Rational expectations implies that the sacrifice rati ...
GwartPPT014 - Crawfordsworld
... As the real rate of interest falls, aggregate demand increases (to AD2). Since the effects of the monetary expansion were unanticipated, the expansion in AD leads to a short-run increase in current output (from Y1 to Y2) . . . and increase in prices (from P1 to P2) – inflation. The path that monetar ...
... As the real rate of interest falls, aggregate demand increases (to AD2). Since the effects of the monetary expansion were unanticipated, the expansion in AD leads to a short-run increase in current output (from Y1 to Y2) . . . and increase in prices (from P1 to P2) – inflation. The path that monetar ...
Phillips Curve - Webarchiv ETHZ / Webarchive ETH
... down in the in the early ’70s. • During the ’70s and ’80s, the economy experienced high inflation and high unemployment simultaneously. ...
... down in the in the early ’70s. • During the ’70s and ’80s, the economy experienced high inflation and high unemployment simultaneously. ...
Exam
... 5) If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be A) an eventual leftward shift in the short-run aggregate supply curve. B) upward pressure on money wage rates. C) unemployment below the natural rate. D) All of the above answ ...
... 5) If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward, there will be A) an eventual leftward shift in the short-run aggregate supply curve. B) upward pressure on money wage rates. C) unemployment below the natural rate. D) All of the above answ ...
Due Date: Thursday, September 8th (at the beginning of class)
... Because G is lowered, the Keynesian cross shifts down, lowering planned expenditures and output. This also means that for each interest rate possible, output is higher in the goods market. So the IS curve will have shifted to the right. ...
... Because G is lowered, the Keynesian cross shifts down, lowering planned expenditures and output. This also means that for each interest rate possible, output is higher in the goods market. So the IS curve will have shifted to the right. ...
Economic Growth, Business Cycles, Unemployment, and Inflation
... Personal consumption expenditure (PCE) deflator – a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits. ...
... Personal consumption expenditure (PCE) deflator – a measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits. ...
This PDF is a selection from a published volume from... Bureau of Economic Research
... to recognize that inflation is driven by real marginal costs, and that they are generally not proportional to the output gap (Galí and Gertler 1999). Under this qualification, the NKPC provides a reasonable fit of the data. While this observation weakens the evidence of BP in favor of noninflationar ...
... to recognize that inflation is driven by real marginal costs, and that they are generally not proportional to the output gap (Galí and Gertler 1999). Under this qualification, the NKPC provides a reasonable fit of the data. While this observation weakens the evidence of BP in favor of noninflationar ...
Global/Exchange Rates/Hyperinflation
... the trade balance and the balance on service exports and imports, this balance deteriorated dramatically in the 1980's. It went from a slight surplus in 1980 to a deficit of almost 200 billion in 1987 and it reflected the very strong dollar that, that was in place in the, in the early 1980's. The do ...
... the trade balance and the balance on service exports and imports, this balance deteriorated dramatically in the 1980's. It went from a slight surplus in 1980 to a deficit of almost 200 billion in 1987 and it reflected the very strong dollar that, that was in place in the, in the early 1980's. The do ...
c.both the total income in the economy and the total expenditure on
... 14.Suppose the cost of the basket at the end of 2002 was $5,500, and at the end of 2003 it was $5,775. If the cost of the basket in the base year was $1,000, find the inflation rate for 2003. ...
... 14.Suppose the cost of the basket at the end of 2002 was $5,500, and at the end of 2003 it was $5,775. If the cost of the basket in the base year was $1,000, find the inflation rate for 2003. ...
Welcome to the "2 Percent" Club
... Although I am not going into a detailed discussion in the interest of time, the CPI has an upward bias and indicates inflation higher than the true inflation rate. Given that fact, people tend to recognize being in a considerably deflationary environment when the year-on-year rate of increase in the ...
... Although I am not going into a detailed discussion in the interest of time, the CPI has an upward bias and indicates inflation higher than the true inflation rate. Given that fact, people tend to recognize being in a considerably deflationary environment when the year-on-year rate of increase in the ...
Aggregate Supply
... • Income & substitution effects do not apply • AD Curve – negative slope – Real-Balances effect • Higher price level means real value of savings decreases • Thus lowering consumption ...
... • Income & substitution effects do not apply • AD Curve – negative slope – Real-Balances effect • Higher price level means real value of savings decreases • Thus lowering consumption ...
13 TIME INCONSISTENCY IN MONETARY POLICY
... an expansionary monetary policy may reduce unemployment. Such a policy is clearly short-termist. From the long-term aspect however this “trade-off” between inflation and unemployment does not apply. This implies that average inflation does not have an influence on average unemployment and the averag ...
... an expansionary monetary policy may reduce unemployment. Such a policy is clearly short-termist. From the long-term aspect however this “trade-off” between inflation and unemployment does not apply. This implies that average inflation does not have an influence on average unemployment and the averag ...
In 2000 in the United Kingdom, the adult population was about 46
... a. left, which would make the real exchange rate of the Kenyan schilling appreciate. b. left, which would make the real exchange rate of the Kenyan schilling depreciate. c. right, which would make the real exchange rate of the Kenyan schilling appreciate. d. right, which would make the real exchange ...
... a. left, which would make the real exchange rate of the Kenyan schilling appreciate. b. left, which would make the real exchange rate of the Kenyan schilling depreciate. c. right, which would make the real exchange rate of the Kenyan schilling appreciate. d. right, which would make the real exchange ...
In 2000 in the United Kingdom, the adult population was about 46
... a36. In recent years, inflation expectations have fallen. This has shifted the short-run Phillips curve a. left, meaning that at any given inflation rate unemployment will be lower in the short run than before. b. right, meaning that at any given inflation rate unemployment will be lower in the sho ...
... a36. In recent years, inflation expectations have fallen. This has shifted the short-run Phillips curve a. left, meaning that at any given inflation rate unemployment will be lower in the short run than before. b. right, meaning that at any given inflation rate unemployment will be lower in the sho ...
Econ 201 Intermediate Macroeconomics
... c) The value today of a nominal payment in the future cannot be greater than the nominal payment itself. TRUE. Nominal interest rates cannot be negative, but real interest rates can. d) Worries about future inflation would tend to make the yield curve slope down. FALSE. Future short-term nominal int ...
... c) The value today of a nominal payment in the future cannot be greater than the nominal payment itself. TRUE. Nominal interest rates cannot be negative, but real interest rates can. d) Worries about future inflation would tend to make the yield curve slope down. FALSE. Future short-term nominal int ...
AP Macroeconomics Unit 5 Portfolio Questions and Answers
... increase investment in residential houses. Investment thus rises when the price level falls. The tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded is called the interest rate effect. A lower price level makes that economy’s go ...
... increase investment in residential houses. Investment thus rises when the price level falls. The tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded is called the interest rate effect. A lower price level makes that economy’s go ...
(Download, 361 KB)
... will ensure economy’s return to the old steady state and that this implies downward pressure on the nominal exchange rate. As a result, depreciation in the MD model is less pronounced than in the M+ model, which leads to a smaller IS shift. In Fig. 1, point C shows the impact equilibrium with static ...
... will ensure economy’s return to the old steady state and that this implies downward pressure on the nominal exchange rate. As a result, depreciation in the MD model is less pronounced than in the M+ model, which leads to a smaller IS shift. In Fig. 1, point C shows the impact equilibrium with static ...
The AD curve shows the relationship between the inflation rate and
... I’ve drawn it so that the new equilibrium is to the left of LRAS’, so that there is a recessionary gap even relative to the new, lower level of potential output. (This need not be the case; if the inflation shock is smaller, the short-run equilibrium could be to the right of LRAS’, though still to t ...
... I’ve drawn it so that the new equilibrium is to the left of LRAS’, so that there is a recessionary gap even relative to the new, lower level of potential output. (This need not be the case; if the inflation shock is smaller, the short-run equilibrium could be to the right of LRAS’, though still to t ...
ECON 2020-200 Principles of Macroeconomics
... the four quizzes given during each of the first two five-week modules are exempt from that major exam, with an automatic grade of 150 points. All students must take the comprehensive final exam to receive credit in this course. ...
... the four quizzes given during each of the first two five-week modules are exempt from that major exam, with an automatic grade of 150 points. All students must take the comprehensive final exam to receive credit in this course. ...
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time. The opposite of inflation is deflation.Inflation affects an economy in various ways, both positive and negative. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.Inflation also has positive effects: Fundamentally, inflation gives everyone an incentive to spend and invest, because if they don't, their money will be worth less in the future. This increase in spending and investment can benefit the economy. However it may also lead to sub-optimal use of resources. Inflation reduces the real burden of debt, both public and private. If you have a fixed-rate mortgage on your house, your salary is likely to increase over time due to wage inflation, but your mortgage payment will stay the same. Over time, your mortgage payment will become a smaller percentage of your earnings, which means that you will have more money to spend. Inflation keeps nominal interest rates above zero, so that central banks can reduce interest rates, when necessary, to stimulate the economy. Inflation reduces unemployment to the extent that unemployment is caused by nominal wage rigidity. When demand for labor falls but nominal wages do not, as typically occurs during a recession, the supply and demand for labor cannot reach equilibrium, and unemployment results. By reducing the real value of a given nominal wage, inflation increases the demand for labor, and therefore reduces unemployment.Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. However, money supply growth does not necessarily cause inflation. Some economists maintain that under the conditions of a liquidity trap, large monetary injections are like ""pushing on a string"". Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.Today, most economists favor a low and steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.