Lecture Note on Classical Macroeconomic Theory
... For given V and Y, the growth rate equation (3) confirms the “basic” analysis: A change in money growth translates into an equal change in the inflation rate. The equation is also consistent with additional inflation during transitions: When money growth increases, expected inflation and interest r ...
... For given V and Y, the growth rate equation (3) confirms the “basic” analysis: A change in money growth translates into an equal change in the inflation rate. The equation is also consistent with additional inflation during transitions: When money growth increases, expected inflation and interest r ...
Macroeconomic Indicators
... The main problem with inflation is that it decreases the purchasing power of consumers. A price rise means that the dollars that people hold are worth less. Falling prices may benefit consumers, however deflation can hurt owners and producers. For example, a drop in housing prices decreases the equi ...
... The main problem with inflation is that it decreases the purchasing power of consumers. A price rise means that the dollars that people hold are worth less. Falling prices may benefit consumers, however deflation can hurt owners and producers. For example, a drop in housing prices decreases the equi ...
Output Gaps: Uses and Limitations
... firms will respond to increased demand by raising prices. Thus, positive output gaps can signal future inflationary pressures. Since monetary policy operates with significant lags, it is important that policymakers have an accurate inflation forecast. Second, some economists argue that employment g ...
... firms will respond to increased demand by raising prices. Thus, positive output gaps can signal future inflationary pressures. Since monetary policy operates with significant lags, it is important that policymakers have an accurate inflation forecast. Second, some economists argue that employment g ...
Multiple Choice 1. Which of the following involves a trade
... Suppose that the economy begins in long-run equilibrium, and the aggregate supply curve does not shift. Suppose investors feel anxious about the economic future. (A) Using an aggregate demand/aggregate supply diagram, show the effects of this anxiety on the short-run levels of prices and output. (B) ...
... Suppose that the economy begins in long-run equilibrium, and the aggregate supply curve does not shift. Suppose investors feel anxious about the economic future. (A) Using an aggregate demand/aggregate supply diagram, show the effects of this anxiety on the short-run levels of prices and output. (B) ...
inflation - Economics
... Real numbers are after adjusting for inflation. High inflation can badly distort growth or trends. When we use real numbers, we remove that distortion, to show what's really happening to the value of things. For example, if you buy your house for $100,000 and sell it a year later for $110,000, you'v ...
... Real numbers are after adjusting for inflation. High inflation can badly distort growth or trends. When we use real numbers, we remove that distortion, to show what's really happening to the value of things. For example, if you buy your house for $100,000 and sell it a year later for $110,000, you'v ...
Teaching Dynamic Aggregate Supply
... in inflation by the full amount of the supply shock. But instead of an inflation rate of (2+2.5) or 4.5 percentage point, following the supply shock, inflation is seen to increase only to 4%. The less than full increase in inflation rate can be attributed to the central bank’s automatic adjustment o ...
... in inflation by the full amount of the supply shock. But instead of an inflation rate of (2+2.5) or 4.5 percentage point, following the supply shock, inflation is seen to increase only to 4%. The less than full increase in inflation rate can be attributed to the central bank’s automatic adjustment o ...
Long-term interest rates, GDP and inflation in Poland
... Long-term interest rates matter only because they embed expectations of future short-term rates ...
... Long-term interest rates matter only because they embed expectations of future short-term rates ...
The Forecasting and Policy System: an introduction Executive summary
... end uses. Goods produced domestically can be used either at home or exported. Exported products are determined by the world price and the exchange rate. Products sold at home bear prices determined by domestic market conditions, but domestic products must compete with imports for domestic sales. In ...
... end uses. Goods produced domestically can be used either at home or exported. Exported products are determined by the world price and the exchange rate. Products sold at home bear prices determined by domestic market conditions, but domestic products must compete with imports for domestic sales. In ...
Annual Economic Outlook 2016
... the subsequent three decades. Since the crisis spending has remained at roughly 68% of GDP, 33.7 hours, returning to their pre-crisis but households have deleveraged relative to income, putting an effective ceiling on consumer trend. Moreover, growth in average hourly spending. Unless consumers are ...
... the subsequent three decades. Since the crisis spending has remained at roughly 68% of GDP, 33.7 hours, returning to their pre-crisis but households have deleveraged relative to income, putting an effective ceiling on consumer trend. Moreover, growth in average hourly spending. Unless consumers are ...
Ch. 31 Notes - Solon City Schools
... and full output (natural rate of unemployment) Real GDP is maximized. 2. Any changes in AD will affect only the price level. 3. In the long run, prices and wages are flexible. 4. This means that if products don’t sell and employees become unemployed, the market will ...
... and full output (natural rate of unemployment) Real GDP is maximized. 2. Any changes in AD will affect only the price level. 3. In the long run, prices and wages are flexible. 4. This means that if products don’t sell and employees become unemployed, the market will ...
Money
... rational expectations theory. According to the “rational expectations” theory workers and businesses will adjust their wages and prices up if they believe that expansionary monetary policy will lead to inflation and increased price levels. Therefore, higher prices of inputs for business will decreas ...
... rational expectations theory. According to the “rational expectations” theory workers and businesses will adjust their wages and prices up if they believe that expansionary monetary policy will lead to inflation and increased price levels. Therefore, higher prices of inputs for business will decreas ...
Bank of England Inflation Report May 2014 Prospects for inflation
... (a) Chart 5.7 represents the cross-section of the GDP growth fan chart in 2016 Q2 for the market interest rate projection. It has been conditioned on the assumption that the stock of purchased assets remains at £375 billion throughout the forecast period. The coloured bands in Chart 5.7 have a simil ...
... (a) Chart 5.7 represents the cross-section of the GDP growth fan chart in 2016 Q2 for the market interest rate projection. It has been conditioned on the assumption that the stock of purchased assets remains at £375 billion throughout the forecast period. The coloured bands in Chart 5.7 have a simil ...
Chapter 13 Money and the Economy
... a. Incorrect. Inflation is caused by either an increase in aggregate demand or by a decrease in aggregate supply. A decline in velocity would, other things equal, result in a decrease, not an increase, in AD. b. Correct. c. Incorrect. Ceteris paribus, an increase in Q would cause deflation. d. Incor ...
... a. Incorrect. Inflation is caused by either an increase in aggregate demand or by a decrease in aggregate supply. A decline in velocity would, other things equal, result in a decrease, not an increase, in AD. b. Correct. c. Incorrect. Ceteris paribus, an increase in Q would cause deflation. d. Incor ...
f06ex3 - Rose
... When calculating GDP, investment includes changes in inventories and residential housing construction. When calculating GDP, government spending includes transfer payments and interest payments on the federal debt. Current GDP includes expenditures by consumers on used automobiles. If a woman in Ohi ...
... When calculating GDP, investment includes changes in inventories and residential housing construction. When calculating GDP, government spending includes transfer payments and interest payments on the federal debt. Current GDP includes expenditures by consumers on used automobiles. If a woman in Ohi ...
Chapter 32: Monetary Theory
... - Monetary theory deals with the effects of the demand and supply of money on income, output, and the price level. The Quantity Theory of Money - The Quantity Theory of Money states that price level changes are due to changes in the quantity of money. The Crude Quantity Theory of Money - The crude q ...
... - Monetary theory deals with the effects of the demand and supply of money on income, output, and the price level. The Quantity Theory of Money - The Quantity Theory of Money states that price level changes are due to changes in the quantity of money. The Crude Quantity Theory of Money - The crude q ...
one version of the test, with answer key
... important fact, namely: when interest rates rise, this causes the demand for money to decline. Now my question to you is this: If you take that additional fact into account, then: a. a tax cut will increase economic activity, but an increase in government spending ...
... important fact, namely: when interest rates rise, this causes the demand for money to decline. Now my question to you is this: If you take that additional fact into account, then: a. a tax cut will increase economic activity, but an increase in government spending ...
Chapter 1: Introduction
... accelerating inflation. The second half of the 1990s saw equally rapid increases in velocity, and so nominal money supply growth had to dip well below zero in order to keep inflation from rising. Economic theory suggests that money demand should be inversely related to the nominal interest rate, whi ...
... accelerating inflation. The second half of the 1990s saw equally rapid increases in velocity, and so nominal money supply growth had to dip well below zero in order to keep inflation from rising. Economic theory suggests that money demand should be inversely related to the nominal interest rate, whi ...
The Case for NGDP Targeting
... loss of output from a housing market slump; all it can do is to prevent the shock from unnecessarily spreading to otherwise stable sectors of the economy. When real shocks occur it is only fair that both debtors and creditors share part of the loss. Suppose lenders made lots of foolish loans to the ...
... loss of output from a housing market slump; all it can do is to prevent the shock from unnecessarily spreading to otherwise stable sectors of the economy. When real shocks occur it is only fair that both debtors and creditors share part of the loss. Suppose lenders made lots of foolish loans to the ...
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.