Monetary Policy and the Interest Rate
... In a correctly labeled graph, show equilibrium in the money market. In a correctly labeled AD/AS graph, show the current short-run equilibrium in the macroeconomy. In response to this high inflation rate, should the Fed engage in expansionary or contractionary fiscal policy? In your graph from the f ...
... In a correctly labeled graph, show equilibrium in the money market. In a correctly labeled AD/AS graph, show the current short-run equilibrium in the macroeconomy. In response to this high inflation rate, should the Fed engage in expansionary or contractionary fiscal policy? In your graph from the f ...
ECONOMIC ENVIRO NMENT answers.d oc
... a) Explain the term ‘double coincidence of wants? (4 marks) a. This relates to the barter economy whereby a supplier of good X wants good Z and the supplier of good Z wants good X. b) Why should governments be worried with deflation? (5 marks) a. Yes as it slows down economic performance; its more ...
... a) Explain the term ‘double coincidence of wants? (4 marks) a. This relates to the barter economy whereby a supplier of good X wants good Z and the supplier of good Z wants good X. b) Why should governments be worried with deflation? (5 marks) a. Yes as it slows down economic performance; its more ...
Principles of Macroeconomics (Spring 2017) Masao Suzuki CRN
... appointment. My office is in Room 2301, telephone (650) 738-4326, email: [email protected]. Other: Roll will be called in every class. Students with too many absences may be dropped. Students are expected to follow the rules in the Skyline Student Handbook and promote a positive ...
... appointment. My office is in Room 2301, telephone (650) 738-4326, email: [email protected]. Other: Roll will be called in every class. Students with too many absences may be dropped. Students are expected to follow the rules in the Skyline Student Handbook and promote a positive ...
The Debate over Monetary and Fiscal Policy
... – Interest rates (opportunity cost of holding cash) • Higher r → lower M, higher velocity ...
... – Interest rates (opportunity cost of holding cash) • Higher r → lower M, higher velocity ...
inflation - WordPress.com
... Monetarist economists believe that the link is very strong; Keynesian economics, by contrast, typically emphasize the role of aggregate demand in the economy rather than the money supply in determining inflation. That is, for Keynesians the money supply is only one determinant of aggregate demand. S ...
... Monetarist economists believe that the link is very strong; Keynesian economics, by contrast, typically emphasize the role of aggregate demand in the economy rather than the money supply in determining inflation. That is, for Keynesians the money supply is only one determinant of aggregate demand. S ...
Problem 1. Use the money market to explain the interest
... we have seen, monetary policy works by changing interest rates, which in turn influence investment spending. But many firms make investment plans far in advance. Thus, most economists believe that it takes at least six months for changes in monetary policy to have much effect on output and employmen ...
... we have seen, monetary policy works by changing interest rates, which in turn influence investment spending. But many firms make investment plans far in advance. Thus, most economists believe that it takes at least six months for changes in monetary policy to have much effect on output and employmen ...
Mankiw 6e PowerPoints
... def: the stock of assets used for transactions functions: medium of exchange, store of value, unit of account types: commodity money (has intrinsic value), fiat money (no intrinsic value) money supply controlled by central bank Quantity theory of money assumes velocity is stable, concludes t ...
... def: the stock of assets used for transactions functions: medium of exchange, store of value, unit of account types: commodity money (has intrinsic value), fiat money (no intrinsic value) money supply controlled by central bank Quantity theory of money assumes velocity is stable, concludes t ...
PDF
... low, and unemployment was between 5 percent and 6 percent; in the 1970s inflation was high, and unemployment was no lower; and in the 1990s inflation is low again, and unemployment has not increased. There are two qualifications to this principle: (i) international evidence from different counuies i ...
... low, and unemployment was between 5 percent and 6 percent; in the 1970s inflation was high, and unemployment was no lower; and in the 1990s inflation is low again, and unemployment has not increased. There are two qualifications to this principle: (i) international evidence from different counuies i ...
Policy Statement - Bank of Botswana
... exchange reserves of approximately 10 percent to P28.9 billion. In contrast to the slowdown in the mineral sector, non-mining activity performed much better during 1998/99, expanding by 8.9 percent, compared to 7.2 percent in 1997/98. Several sectors, including water and electricity, transport, trad ...
... exchange reserves of approximately 10 percent to P28.9 billion. In contrast to the slowdown in the mineral sector, non-mining activity performed much better during 1998/99, expanding by 8.9 percent, compared to 7.2 percent in 1997/98. Several sectors, including water and electricity, transport, trad ...
Aggregate Supply Under Price Rigidity
... because, in order to elicit more hours of work, the producer has to offer a higher wage not only to that (marginal) hour but also to all the (inra-marginal) existing hours. Equilibrium employment occurs at a point where the marginal factor costs is equal to the marginal productivity. Equilibrium wag ...
... because, in order to elicit more hours of work, the producer has to offer a higher wage not only to that (marginal) hour but also to all the (inra-marginal) existing hours. Equilibrium employment occurs at a point where the marginal factor costs is equal to the marginal productivity. Equilibrium wag ...
Effects of Inflation
... A rational expectation is one based on all relevant information and is the most accurate forecast possible, although that does not mean it is always right; to the contrary, it will often be wrong. It does mean that the forecasts will not be systematically wrong. In particular, it suggests that polic ...
... A rational expectation is one based on all relevant information and is the most accurate forecast possible, although that does not mean it is always right; to the contrary, it will often be wrong. It does mean that the forecasts will not be systematically wrong. In particular, it suggests that polic ...
ECONOMIC REFORMS AND MONETARY POLICY OF TAJIKISTAN
... Finance in 1998. The macroeconomic stabilization program introduced inflation targeting in the monetary policy of Tajikistan. As a result of the stabilization program inflation declined more 159% during 1997 to 2.7% in 1998 (NBT: 1998-99; IMF: 2000). The main reasons for the significant decline in i ...
... Finance in 1998. The macroeconomic stabilization program introduced inflation targeting in the monetary policy of Tajikistan. As a result of the stabilization program inflation declined more 159% during 1997 to 2.7% in 1998 (NBT: 1998-99; IMF: 2000). The main reasons for the significant decline in i ...
Monetary policy and asset prices
... two approaches how central banks should respond to the emergence of asset bubbles.6 The conventional or indirect strategy, which was pursued by the Fed prior to the crisis, called for central banks to focus exclusively on the stability of prices and economic activity over the foreseeable future. Cen ...
... two approaches how central banks should respond to the emergence of asset bubbles.6 The conventional or indirect strategy, which was pursued by the Fed prior to the crisis, called for central banks to focus exclusively on the stability of prices and economic activity over the foreseeable future. Cen ...
price inflation and gdp growth-what matters most
... Source: Reserve bank of India, monetary policy statements Journal of Economics and Economic Education Research, Volume 11, Number 3, 2010 ...
... Source: Reserve bank of India, monetary policy statements Journal of Economics and Economic Education Research, Volume 11, Number 3, 2010 ...
Macro3 Exercise #4 Answers
... is a result of shifting aggregate supply. In the underlying economy why would this happen? Due to the high unemployment rate (compared to full employment) wages fall by more than prices so production becomes more profitable at a given price level. That is why the supply line shifts. Is there any rea ...
... is a result of shifting aggregate supply. In the underlying economy why would this happen? Due to the high unemployment rate (compared to full employment) wages fall by more than prices so production becomes more profitable at a given price level. That is why the supply line shifts. Is there any rea ...
6th Edition - Zimbabwe hyperinflation
... ∑ The tobacco industry, which was Zimbabwe’s single largest generator of foreign exchange and accounted for almost a third of Zimbabwe’s foreign exchange earnings in 2000, has almost completely collapsed. ∑ The crop that earned some US$600 million in 2000 generated less than US$125 million in 2007. ...
... ∑ The tobacco industry, which was Zimbabwe’s single largest generator of foreign exchange and accounted for almost a third of Zimbabwe’s foreign exchange earnings in 2000, has almost completely collapsed. ∑ The crop that earned some US$600 million in 2000 generated less than US$125 million in 2007. ...
Measurement Of Macroeconomic Variables
... 2. An alternate model explains that the AS curve increases because some nominal input prices are fixed in the short-run and as output rises, more production processes encounter bottlenecks. At low levels of demand, large numbers of production processes do not make full use of their fixed capital equ ...
... 2. An alternate model explains that the AS curve increases because some nominal input prices are fixed in the short-run and as output rises, more production processes encounter bottlenecks. At low levels of demand, large numbers of production processes do not make full use of their fixed capital equ ...
Lecture 4 Business Cycles and Aggregate Supply and
... Differences of AD with the micro demand - AD curves relate overall spending on all components of output to the overall price level - AD is downward sloping mainly due to the money-supply effect. That is when a rise in the price level occurs, the real money supply is reduced (all others held constan ...
... Differences of AD with the micro demand - AD curves relate overall spending on all components of output to the overall price level - AD is downward sloping mainly due to the money-supply effect. That is when a rise in the price level occurs, the real money supply is reduced (all others held constan ...
ECON00 Chapter 3
... – inflation reduces purchasing power of people with fixed (unchanged dollar) income or savings – nominal interest rate observed interest rate; dollars per year in interest as percentage of dollars saved – realized real interest rate is nominal interest rate adjusted for inflation = nominal interest ...
... – inflation reduces purchasing power of people with fixed (unchanged dollar) income or savings – nominal interest rate observed interest rate; dollars per year in interest as percentage of dollars saved – realized real interest rate is nominal interest rate adjusted for inflation = nominal interest ...
Fears of Deflation Then and Now
... inflation targeting countries are characterized by a relatively large fraction of exports to GDP. In addition, of course, these same countries are also small open economies that can conceivably suffer the twin shocks of lower commodity prices and a falling exchange rate. 1 The latter can conceivably ...
... inflation targeting countries are characterized by a relatively large fraction of exports to GDP. In addition, of course, these same countries are also small open economies that can conceivably suffer the twin shocks of lower commodity prices and a falling exchange rate. 1 The latter can conceivably ...
Department of Economics Working Papers
... in the price of oil (and hence also the prices of its many derivatives): stagflation.12 Partly in response to the confusion caused by this period of rising unemployment combined with rising prices, Keynesians combined the IS and LM curves into an aggregate demand (AD) curve and added a short run agg ...
... in the price of oil (and hence also the prices of its many derivatives): stagflation.12 Partly in response to the confusion caused by this period of rising unemployment combined with rising prices, Keynesians combined the IS and LM curves into an aggregate demand (AD) curve and added a short run agg ...
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.