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Aggregate Demand/Supply
... 8. In the AD–AS model, the intersection of the short-run aggregate supply curve and the aggregate demand curve is the point of short-run macroeconomic equilibrium. It determines the short-run equilibrium aggregate price level and the level of short-run equilibrium aggregate output. 9. Economic fluct ...
... 8. In the AD–AS model, the intersection of the short-run aggregate supply curve and the aggregate demand curve is the point of short-run macroeconomic equilibrium. It determines the short-run equilibrium aggregate price level and the level of short-run equilibrium aggregate output. 9. Economic fluct ...
Effectiveness of devaluation in achieving Internal and External
... reassess and exchange controls, high tariffs and quantitative restrictions which result in a divergence between world prices and domestic prices leading to policy induced distortion with a considerable macro-economic implications (World Bank, 1990). In addition, Ethiopia has already applied for the ...
... reassess and exchange controls, high tariffs and quantitative restrictions which result in a divergence between world prices and domestic prices leading to policy induced distortion with a considerable macro-economic implications (World Bank, 1990). In addition, Ethiopia has already applied for the ...
Output Market: Output and the Price Level
... increasingly large share of GDP, while in China there was a sharp decline in consumption’s share of GDP – from 63% to 37%. This falling consumption share is the result of a high savings rate and indicates that the Chinese people have not been the primary beneficiaries of the economic growth that Chi ...
... increasingly large share of GDP, while in China there was a sharp decline in consumption’s share of GDP – from 63% to 37%. This falling consumption share is the result of a high savings rate and indicates that the Chinese people have not been the primary beneficiaries of the economic growth that Chi ...
2010-I CENTRAL BANK OF THE REPUBLIC OF TURKEY
... continue to support disinflation. The tightness in credit conditions have been moderating since the publication of the July Inflation Report. Easing financial conditions and declining loan rates have been strengthening the expansionary impact of monetary policy. The October Inflation Report had stat ...
... continue to support disinflation. The tightness in credit conditions have been moderating since the publication of the July Inflation Report. Easing financial conditions and declining loan rates have been strengthening the expansionary impact of monetary policy. The October Inflation Report had stat ...
AS-AD and the Business Cycle
... GDP. The amount by which real GDP exceeds potential GDP is called an inflationary gap. An inflationary gap occurs when the AS curve and the AD curve intersect to the right of the potential GDP line, as illustrated in the figure to the left, above. In this case real wages have fallen and workers even ...
... GDP. The amount by which real GDP exceeds potential GDP is called an inflationary gap. An inflationary gap occurs when the AS curve and the AD curve intersect to the right of the potential GDP line, as illustrated in the figure to the left, above. In this case real wages have fallen and workers even ...
NBER WORKING PAPER SERIES TECHNOLOGY SHOCKS IN THE NEW KEYNESIAN MODEL
... which plays the role of the model’s money demand relationship. Under an interest rate rule for monetary policy like the one introduced below, however, this money demand equation serves only to determine how much money the central bank needs to supply to clear markets given its interest rate target r ...
... which plays the role of the model’s money demand relationship. Under an interest rate rule for monetary policy like the one introduced below, however, this money demand equation serves only to determine how much money the central bank needs to supply to clear markets given its interest rate target r ...
NBER WORKING PAPER SERIES DSGE MODELS FOR MONETARY POLICY ANALYSIS Mathias Trabandt
... articulate why this prescription is a good one. However, alternative versions of the model can be used to identify potential pitfalls for the Taylor principle. In particular, a policyinduced rise in the nominal interest rate may destabilize the economy by perversely giving a direct boost to inflatio ...
... articulate why this prescription is a good one. However, alternative versions of the model can be used to identify potential pitfalls for the Taylor principle. In particular, a policyinduced rise in the nominal interest rate may destabilize the economy by perversely giving a direct boost to inflatio ...
Document
... compute the unemployment rate. People are considered employed if they worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons. People are considered unemployed if they did not work in the previous w ...
... compute the unemployment rate. People are considered employed if they worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons. People are considered unemployed if they did not work in the previous w ...
Fiscal Policy in a Currency Union at the Zero Lower Bound ∗
... also will creates additional distortions, so perfect allocation cannot be achieved. As noted by, Corsetti, Keester and Muller (2012) and Cook and Devereux (2015), a currency union does contain a commitment to maintaining price level differentials. Thus, the optimal rules are dynamic in nature, even w ...
... also will creates additional distortions, so perfect allocation cannot be achieved. As noted by, Corsetti, Keester and Muller (2012) and Cook and Devereux (2015), a currency union does contain a commitment to maintaining price level differentials. Thus, the optimal rules are dynamic in nature, even w ...
Exercise 6 (+additional question) in Mankiw:
... total factor productivity between the years? Problem 8.3: Assume an economy which is characterized by perfect competition in the goods and labor market, in which the owners of capital get one-third of national income, and the workers receive two-thirds. Assume a Cobb-Douglas aggregate production fun ...
... total factor productivity between the years? Problem 8.3: Assume an economy which is characterized by perfect competition in the goods and labor market, in which the owners of capital get one-third of national income, and the workers receive two-thirds. Assume a Cobb-Douglas aggregate production fun ...
chapter - Macmillan Learning
... purchases of goods and services. The larger the quantity of goods and services they buy, the larger the quantity of money they will want to hold at any given interest rate. So an increase in real GDP—the total quantity of goods and services produced and sold in the economy—shifts the money demand cu ...
... purchases of goods and services. The larger the quantity of goods and services they buy, the larger the quantity of money they will want to hold at any given interest rate. So an increase in real GDP—the total quantity of goods and services produced and sold in the economy—shifts the money demand cu ...
PROBLEMS AND SOLUTIONS for B-level course Joakim Persson
... total factor productivity between the years? Problem 8.3: Assume an economy which is characterized by perfect competition in the goods and labor market, in which the owners of capital get one-third of national income, and the workers receive two-thirds. Assume a Cobb-Douglas aggregate production fun ...
... total factor productivity between the years? Problem 8.3: Assume an economy which is characterized by perfect competition in the goods and labor market, in which the owners of capital get one-third of national income, and the workers receive two-thirds. Assume a Cobb-Douglas aggregate production fun ...
Problems for Macroeconomics, 2/e
... for the differences, the text leaves the implication that Japanese banking system is less efficient than the U.S. banking system, which perhaps allows for easier recovery in the United States. There is also an allusion to the liquidity trap in Japan, since interest rates are zero. However, the mecha ...
... for the differences, the text leaves the implication that Japanese banking system is less efficient than the U.S. banking system, which perhaps allows for easier recovery in the United States. There is also an allusion to the liquidity trap in Japan, since interest rates are zero. However, the mecha ...
Simple and Robust Rules for Monetary Policy by
... models in robustness analyses of Levin, Wieland, and Williams (1999). More or less simultaneously practical experience was confirming the model simulation results as the instability of the Great Inflation of the 1970s gave way to the Great Moderation around the same time that actual monetary policy ...
... models in robustness analyses of Levin, Wieland, and Williams (1999). More or less simultaneously practical experience was confirming the model simulation results as the instability of the Great Inflation of the 1970s gave way to the Great Moderation around the same time that actual monetary policy ...
Reassessing Discretionary Fiscal Policy
... Fed to raise interest rates, which in turn reduces output—results in the negatively sloped aggregate demand (AD) relationship between inflation and real GDP shown in Figure 1. Movements along the AD relationship occur when inflation changes and the central bank changes the interest rate, causing rea ...
... Fed to raise interest rates, which in turn reduces output—results in the negatively sloped aggregate demand (AD) relationship between inflation and real GDP shown in Figure 1. Movements along the AD relationship occur when inflation changes and the central bank changes the interest rate, causing rea ...
Fiscal Policy in an Unemployment Crisis
... reduces private wealth and stimulates labor supply (e.g. Barro and King (1984) and Aiyagari et al. (1992)). Yet the same wealth effect which instills a rise in output crowds out private consumption and the multiplier must fall short of unity. Alternatively, in the new Keynesian model in which prices ...
... reduces private wealth and stimulates labor supply (e.g. Barro and King (1984) and Aiyagari et al. (1992)). Yet the same wealth effect which instills a rise in output crowds out private consumption and the multiplier must fall short of unity. Alternatively, in the new Keynesian model in which prices ...
P 1
... – The short run is defined as that period of time over which nominal factor costs do not change. • Nominal factor costs include wages, interest paid on loans, and the cost of plant and equipment. ...
... – The short run is defined as that period of time over which nominal factor costs do not change. • Nominal factor costs include wages, interest paid on loans, and the cost of plant and equipment. ...
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.