1. Rational Expectations
... If the market believes the central bank will stick to its antiinflationary plan, everyone switches to expecting zero inflation. However, not all wages adjust immediately to the new scenario. Hence the AS curve still shifts to the left and there is a recession (although a smaller recession than if th ...
... If the market believes the central bank will stick to its antiinflationary plan, everyone switches to expecting zero inflation. However, not all wages adjust immediately to the new scenario. Hence the AS curve still shifts to the left and there is a recession (although a smaller recession than if th ...
Refocusing the Fed
... is determined entirely by the current and expected future path for the funds rate, then it follows immediately that once the current short-term rate hits its lower bound of zero, the only way to provide further monetary stimulus is to make promises about lower future short-term rates. Furthermore, ...
... is determined entirely by the current and expected future path for the funds rate, then it follows immediately that once the current short-term rate hits its lower bound of zero, the only way to provide further monetary stimulus is to make promises about lower future short-term rates. Furthermore, ...
“Don’t just do something, stand there”… (and think)
... the first place is likely to yield greater benefits. And the main reason for saying this is that the simplest, and arguably most effective, policy may well have low long run costs. That policy is to gradually change the funding structure of banks so that they are much better able to deal with shocks ...
... the first place is likely to yield greater benefits. And the main reason for saying this is that the simplest, and arguably most effective, policy may well have low long run costs. That policy is to gradually change the funding structure of banks so that they are much better able to deal with shocks ...
homework 3 (chapter 34) eco 11 fall 2006 udayan roy
... d. In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. According to liquidity preference theory, an increase in the pri ...
... d. In the short run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. According to liquidity preference theory, an increase in the pri ...
MS-WORD - Department of Economics
... (1) real and monetary factors can rarely be disentangled, especially for long-run trends; (2) and thus that the two forces -- monetary and real -- are related, and that both have to be utilized to explain those price trends. c) Marc Bloch's Peculiar Seismograph: Monetary and Demographic Changes i) T ...
... (1) real and monetary factors can rarely be disentangled, especially for long-run trends; (2) and thus that the two forces -- monetary and real -- are related, and that both have to be utilized to explain those price trends. c) Marc Bloch's Peculiar Seismograph: Monetary and Demographic Changes i) T ...
Phillips curve
... the short-run tradeoff between inflation and unemployment. At point A, expected inflation and actual inflation are both low, and unemployment is at in its natural rate. If the Fed pursues an expansionary monetary policy. The economy moves from point A to point B in the short run. At point B, expecte ...
... the short-run tradeoff between inflation and unemployment. At point A, expected inflation and actual inflation are both low, and unemployment is at in its natural rate. If the Fed pursues an expansionary monetary policy. The economy moves from point A to point B in the short run. At point B, expecte ...
Money and Inflation
... one-shot permanent increase in the price level. What happens to the inflation rate? When we move from point 1 to 1 to 2, the price level rises, and we have a positive inflation rate. But when we finally get to point 2, the inflation rate returns to zero. We see that the one-shot increase in governm ...
... one-shot permanent increase in the price level. What happens to the inflation rate? When we move from point 1 to 1 to 2, the price level rises, and we have a positive inflation rate. But when we finally get to point 2, the inflation rate returns to zero. We see that the one-shot increase in governm ...
No:10 Research Department Working Paper
... agricultural sector contributed to banking system volatility, as this ‘duty losses’ increased from 0.7% of GNP in 1993 to 16.7% in 1999. These loses were not recorded in the budget. Domestic borrowing to finance deficit induces high interest rates. The consequence of high domestic borrowing to finan ...
... agricultural sector contributed to banking system volatility, as this ‘duty losses’ increased from 0.7% of GNP in 1993 to 16.7% in 1999. These loses were not recorded in the budget. Domestic borrowing to finance deficit induces high interest rates. The consequence of high domestic borrowing to finan ...
Developments in the Euro Area Economy
... the euro area (EA) such as inflation swap rates and oil prices. This is somewhat surprising as changes in the oil price, while certainly affecting relative prices and price levels, should in theory have only temporary effects on the inflation rate. Forward looking and rational financial markets shou ...
... the euro area (EA) such as inflation swap rates and oil prices. This is somewhat surprising as changes in the oil price, while certainly affecting relative prices and price levels, should in theory have only temporary effects on the inflation rate. Forward looking and rational financial markets shou ...
Chapter22
... foreign trade restrictions. Although some of these arguments have some merit in some cases, economists believe that free trade is usually the better policy. Key concepts World price, tariff, import quota, Chapter10 Summary When a transaction between a buyer and seller directly affects a third party, ...
... foreign trade restrictions. Although some of these arguments have some merit in some cases, economists believe that free trade is usually the better policy. Key concepts World price, tariff, import quota, Chapter10 Summary When a transaction between a buyer and seller directly affects a third party, ...
NBER WORKING PAPER SERIES THE ECONOMY OF ISRAEL Stanley Fischer
... owned by the private sector. Thu reserve requirement for the banks against foreign currency linked deposits is 90%; and the indexation provided by private institutions is based on their holdings of government indexed liabilities. Thus the government's daninance in the ...
... owned by the private sector. Thu reserve requirement for the banks against foreign currency linked deposits is 90%; and the indexation provided by private institutions is based on their holdings of government indexed liabilities. Thus the government's daninance in the ...
Lecture 8
... Aggregate demand: Equilibrium in the IS-LM model How to use the IS-LM model to analyse the effects of a change in some exogenous variable: • Determine whether disturbance shifts IS and/or LM curve(s) and draw new curves in the diagram • From the diagram, read what is the effect on interest rate and ...
... Aggregate demand: Equilibrium in the IS-LM model How to use the IS-LM model to analyse the effects of a change in some exogenous variable: • Determine whether disturbance shifts IS and/or LM curve(s) and draw new curves in the diagram • From the diagram, read what is the effect on interest rate and ...
ExamView Pro - sgch20
... a. the money supply of a given increase in government purchases. b. tax revenues of a given increase in government purchases. c. investment of a given increase in interest rates. d. aggregate demand of a given increase in government purchases. 6. The government purchases multiplier is defined as a. ...
... a. the money supply of a given increase in government purchases. b. tax revenues of a given increase in government purchases. c. investment of a given increase in interest rates. d. aggregate demand of a given increase in government purchases. 6. The government purchases multiplier is defined as a. ...
GDP
... substitution bias, introduction of new goods, and unmeasured quality changes cause the CPI to overstate the true cost of living. ...
... substitution bias, introduction of new goods, and unmeasured quality changes cause the CPI to overstate the true cost of living. ...
Monetary Policy Report – July 2014
... conditions ease further Most of the factors restraining the pace of the global economic expansion in recent years have dissipated further, although some continue to have an impact. Fiscal drag is diminishing significantly in many advanced economies (Chart 1). Household deleveraging in the United Sta ...
... conditions ease further Most of the factors restraining the pace of the global economic expansion in recent years have dissipated further, although some continue to have an impact. Fiscal drag is diminishing significantly in many advanced economies (Chart 1). Household deleveraging in the United Sta ...
Parkin-Bade Chapter 21
... GPD deflator. The GDP deflator is an index of the prices of all the items in GDP. The GDP deflator = (Nominal GDP ÷ Real GDP) × 100. The GDP deflator, a broader price index, is appropriate for macroeconomics because it is a comprehensive measure of the cost of the real GDP basket of goods and servic ...
... GPD deflator. The GDP deflator is an index of the prices of all the items in GDP. The GDP deflator = (Nominal GDP ÷ Real GDP) × 100. The GDP deflator, a broader price index, is appropriate for macroeconomics because it is a comprehensive measure of the cost of the real GDP basket of goods and servic ...
Foundations of Economics for International Business Selected
... (c) If the Fed keeps the money supply the same, the decrease in velocity shifts the aggregate demand curve downward, as in Figure 5. In the short run when prices are sticky, the economy moves from the initial equilibrium, point A, to the short-run equilibrium, point B. The drop in aggregate demand r ...
... (c) If the Fed keeps the money supply the same, the decrease in velocity shifts the aggregate demand curve downward, as in Figure 5. In the short run when prices are sticky, the economy moves from the initial equilibrium, point A, to the short-run equilibrium, point B. The drop in aggregate demand r ...
the evolution of monetary policy in transition economies
... other relatively direct measures to control the supply of money, although, in general, money growth targets were overshot. Over time, more indirect measures, including changes in the reserve ratio, the short-term repo rate and open market operations became the key tools for controlling the money sup ...
... other relatively direct measures to control the supply of money, although, in general, money growth targets were overshot. Over time, more indirect measures, including changes in the reserve ratio, the short-term repo rate and open market operations became the key tools for controlling the money sup ...
1 - Hans-Böckler
... unemployment (SIRU) or the constant-inflation rate of unemployment (CIRU). It is the rate of unemployment at which the rate of inflation would remain constant. Whereas proponents of the old Phillips curve claimed that there is a trade-off (a negative relationship) between the rate of wage or price i ...
... unemployment (SIRU) or the constant-inflation rate of unemployment (CIRU). It is the rate of unemployment at which the rate of inflation would remain constant. Whereas proponents of the old Phillips curve claimed that there is a trade-off (a negative relationship) between the rate of wage or price i ...
3 - Studyit
... Illegal activities are excluded (e.g. selling drugs) Payments in kind (services given in exchange for services or nothing) Nominal and Real GDP Nominal GDP refers to the value of output at current market prices whereas Real GDP refers to nominal GDP adjusted for price changes relative to some ba ...
... Illegal activities are excluded (e.g. selling drugs) Payments in kind (services given in exchange for services or nothing) Nominal and Real GDP Nominal GDP refers to the value of output at current market prices whereas Real GDP refers to nominal GDP adjusted for price changes relative to some ba ...
Inflation and Hyperinflation
... and silver increased the money supply and raised prices significantly, but again the annual rates of inflation were quite low by present standards. (from 1551 – 1600, the average inflation rate was probably less than 2% per year.) There are only three known truly high inflation before this century, ...
... and silver increased the money supply and raised prices significantly, but again the annual rates of inflation were quite low by present standards. (from 1551 – 1600, the average inflation rate was probably less than 2% per year.) There are only three known truly high inflation before this century, ...
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.