Lecture5a - Harbert College of Business
... – If investors feel the prices of real goods will increase (inflation), it will take increased interest rates to encourage them to place their funds in financial assets. ...
... – If investors feel the prices of real goods will increase (inflation), it will take increased interest rates to encourage them to place their funds in financial assets. ...
Figure 1 Aggregate Supply and Demand
... weighted average of the actual inflation experienced in the past two years (65% of the weight on the most recent year). If the actual inflation rate is changing they keep changing their expectations. If nominal interest rates stayed the same, the real interest rate would fall. A reduction in the rea ...
... weighted average of the actual inflation experienced in the past two years (65% of the weight on the most recent year). If the actual inflation rate is changing they keep changing their expectations. If nominal interest rates stayed the same, the real interest rate would fall. A reduction in the rea ...
Inflation - Economics
... THE QUANTITY THEORY OF MONEY, INCREASE IN THE MONEY SUPPLY WITH NOT MUCH INFLATION. ...
... THE QUANTITY THEORY OF MONEY, INCREASE IN THE MONEY SUPPLY WITH NOT MUCH INFLATION. ...
Part 1
... (6 points) Assume that the economy is hit by a negative money demand shock only. Under the central bank’s rule, how will the money supply respond to a money demand shock? Will the rule make aggregate demand more stable or less stable than it would be if the money supply were constant? ...
... (6 points) Assume that the economy is hit by a negative money demand shock only. Under the central bank’s rule, how will the money supply respond to a money demand shock? Will the rule make aggregate demand more stable or less stable than it would be if the money supply were constant? ...
Inflation: Its Causes and Cures Inflation • Introduction
... Figure 8-3 The Adjustment Path of Inflation and Real GDP to an Acceleration of Nominal GDP Growth from Zero to 6 Percent When Expectations Fails to Adjust ...
... Figure 8-3 The Adjustment Path of Inflation and Real GDP to an Acceleration of Nominal GDP Growth from Zero to 6 Percent When Expectations Fails to Adjust ...
Answers to Questions in Chapter 23
... have been pursued in recent years.) What will happen to the current and capital accounts of the balance of payments? The high interest rates will cause a surplus on the capital account. The higher exchange rate will cause a deficit on the current account. 544 Why will excessive international liqui ...
... have been pursued in recent years.) What will happen to the current and capital accounts of the balance of payments? The high interest rates will cause a surplus on the capital account. The higher exchange rate will cause a deficit on the current account. 544 Why will excessive international liqui ...
Cost Shocks in the AD/ AS Model
... raise the interest rate to lessen inflation at a cost of making the output situation worse, or should it lower the interest rate to help output growth at a cost of making inflation worse? In the 1979–1983 period, the Fed generally raised the interest rate when inflation was high—even when output was ...
... raise the interest rate to lessen inflation at a cost of making the output situation worse, or should it lower the interest rate to help output growth at a cost of making inflation worse? In the 1979–1983 period, the Fed generally raised the interest rate when inflation was high—even when output was ...
Lecture 13
... Animal spirits can be considered expectations of the future. They are hard to predict or to quantify. However formed, firms’ expectations of future prices may affect their current price decisions. An increase in future price expectations may shift the AS curve to the left and thus act like a cost sh ...
... Animal spirits can be considered expectations of the future. They are hard to predict or to quantify. However formed, firms’ expectations of future prices may affect their current price decisions. An increase in future price expectations may shift the AS curve to the left and thus act like a cost sh ...
NBER WORKING PAPER SERIES RECENT DEVELOPMENTS A VERY QUICK REFRESHER COURSE
... expectations-augmented Phillips curve of Friedman and Phelps. In particular, letting Y denote the level of output, Y* the natural rate, ...
... expectations-augmented Phillips curve of Friedman and Phelps. In particular, letting Y denote the level of output, Y* the natural rate, ...
Securing Price Stability as Singapore Restructures
... powerful tool to moderate the impact of foreign price changes on domestic inflation. Exports are the chief driver of economic growth; and the exchange rate, as a key factor affecting export demand, is thus also an effective means for managing aggregate demand and hence overall inflationary pressur ...
... powerful tool to moderate the impact of foreign price changes on domestic inflation. Exports are the chief driver of economic growth; and the exchange rate, as a key factor affecting export demand, is thus also an effective means for managing aggregate demand and hence overall inflationary pressur ...
File
... Curve analysis that when the actual rate of inflation is greater than the expected rate, the unemployment rate will: A) rise temporarily, but decreases in nominal wages will decrease unemployment to its natural rate and bring the expected and actual rates of inflation into balance. B) rise temporari ...
... Curve analysis that when the actual rate of inflation is greater than the expected rate, the unemployment rate will: A) rise temporarily, but decreases in nominal wages will decrease unemployment to its natural rate and bring the expected and actual rates of inflation into balance. B) rise temporari ...
Monetary Policy Decision Making - Federal Reserve Bank of New York
... ▫ estimates of the longer-run normal rates of output growth and unemployment are published four times per year in the FOMC’s Summary of Economic Projections (SEP). – For example, according to the latest SEP, longer-run normal rate of unemployment is between 4.9 and 5.8 percent (central tendency: 5.0 ...
... ▫ estimates of the longer-run normal rates of output growth and unemployment are published four times per year in the FOMC’s Summary of Economic Projections (SEP). – For example, according to the latest SEP, longer-run normal rate of unemployment is between 4.9 and 5.8 percent (central tendency: 5.0 ...
Macro Glossary File
... market demand: - the total demand for a product by all consumers. market supply: - the total supply of a product offered by all producers. market: - a mechanism that brings buyers and sellers together and assists them in negotiating the exchange of products. medium of exchange: - something that is a ...
... market demand: - the total demand for a product by all consumers. market supply: - the total supply of a product offered by all producers. market: - a mechanism that brings buyers and sellers together and assists them in negotiating the exchange of products. medium of exchange: - something that is a ...
File
... Can changes in the way central banks are governed affect inflation expectations? Increased Political Independence for the Bank of England Lowered Inflation Expectations ...
... Can changes in the way central banks are governed affect inflation expectations? Increased Political Independence for the Bank of England Lowered Inflation Expectations ...
Lecture 9 & 10 - National University of Ireland, Galway
... Interest rates in the euro area set by the European Central Bank (ECB) ...
... Interest rates in the euro area set by the European Central Bank (ECB) ...
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Document
... • Anything (other than price!) that causes C, I, G, or NX to increase will shift the AD curve to the right. • C increases when… – There is an increase in consumer confidence, leading to more current consumption and less current savings – Taxes are cut leaving consumers with more income to spend (ass ...
... • Anything (other than price!) that causes C, I, G, or NX to increase will shift the AD curve to the right. • C increases when… – There is an increase in consumer confidence, leading to more current consumption and less current savings – Taxes are cut leaving consumers with more income to spend (ass ...
Philippines
... Consumer spending rose 3.4% y/y in 2Q08. Exports rose 7.7% y/y, with agricultural production climbing 4.9% y/y. The main drivers of the economy are domestic demand and electronic and agricultural exports. However, exports are likely to be hurt by a sharper slowdown in the G7 economies in 2H08, while ...
... Consumer spending rose 3.4% y/y in 2Q08. Exports rose 7.7% y/y, with agricultural production climbing 4.9% y/y. The main drivers of the economy are domestic demand and electronic and agricultural exports. However, exports are likely to be hurt by a sharper slowdown in the G7 economies in 2H08, while ...
Topic 2: Macroeconomics
... Inflation = “An increase in the overall price level” Usually measured by the consumer price index (CPI) ...
... Inflation = “An increase in the overall price level” Usually measured by the consumer price index (CPI) ...
Economic Policies for the 1980`s - Scholarly Commons
... supplies for a long time. Considering the worldwide demand and supply relationships, the price of crude petroleum is likely to double again within a few years.6 Apart from the severe damage inflicted upon the oil-importing Less Developed Countries (LDC's) by the huge increases in their oil import bi ...
... supplies for a long time. Considering the worldwide demand and supply relationships, the price of crude petroleum is likely to double again within a few years.6 Apart from the severe damage inflicted upon the oil-importing Less Developed Countries (LDC's) by the huge increases in their oil import bi ...
Detailed analyses, figures and tables (PDF, 61 KB)
... The development of private construction and equipment investment will be hampered by the still high uncertainty about the economic outlook and the low level of capacity utilization. In addition, financial tensions will keep on weighing on the financing conditions faced by firms while credit standard ...
... The development of private construction and equipment investment will be hampered by the still high uncertainty about the economic outlook and the low level of capacity utilization. In addition, financial tensions will keep on weighing on the financing conditions faced by firms while credit standard ...
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.