Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic growth wikipedia , lookup
Monetary policy wikipedia , lookup
Inflation targeting wikipedia , lookup
Long Depression wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Transformation in economics wikipedia , lookup
Nominal rigidity wikipedia , lookup
Business cycle wikipedia , lookup
Full employment wikipedia , lookup
Chapter 23 The Challenges of Monetary Policy ©2000 South-Western College Publishing What is stagflation? A condition of concurrent high unemployment and inflation 2 Long Run Sustainable Economic Growth determined by the growth and productivity of labor and capital Short Run Full Employment Stable Prices Exhibit 23 - 1 Achieving these goals in the short run helps to achieve maximum sustainable economic growth in the long run Satisfactory External Balance compatible with full employment and stable prices 3 Steady Noninflationary Growth Price Level LRAS LRAS' 1.10 •D 1.05 1.00 A LRAS'' •I B C AD'' AD AD' $4,000 $4,120 $4,244 Real GDP (billions) Exhibit 23 - 2 4 (A) = Nominal Interest Rate (B) = Expected Inflation Rate (C) = Taxes (D) = Real After Tax Return (Eq. 23.1) (Eq. 23.2) (A) – (B) – (C) = (D) .04 – 0 – (.2 5 .04) = .03 .06 – .02 – (2.5 .06) = .025 5 Deflation A drop in the overall price level as measured by a price index 6 Employment Act of 1946 The first act that directed policymakers to pursue policies to achieve full employment and noninflationary growth 7 Humphrey-Hawkins Full Employment & Balanced Growth Act of 1978 An act that required policymakers to pursue policies to achieve full employment and noninflationary growth 8 Natural Rate of Unemployment The rate of unemployment consistent with stable prices, believed to be about 5.5 percent 9 An Unexpected Increase in Aggregate Demand with No Fed Response Price Level LRAS SRAS' C SRAS 1.10 B 1.05 1.00 A AD' AD $1,500 $1,700 Real GDP (billions) Exhibit 23 - 3 10 Possible Policymaker Response to an Unexpected Increase in Aggregate Demand Price Level LRAS SRAS B A AD AD' Real GDP 11 Exhibit 23 - 4 Demand-Induced Recession Price Level LRAS SRAS SRAS' A 1.00 .95 .90 B C AD' AD Real GDP (in billions) 12 Exhibit 23 - 5 Stop-Go Policy Cycle Policy that switches from expansionary to contractionary, and so on 13 Phillips Curve A curve suggesting a trade-off between unanticipated inflation and unemployment in the short run 14 The Phillips Curve Price Level LRAS 1.00 B .95 .90 SRAS A C AD' AD'' AD Real GDP 15 The Phillips Curve Inflation B A Unemployment C 16 Supply Shock Any event that shifts the shortrun aggregate supply curve 17 Cost-Push Inflation Sustained increases in the overall price level, triggered by increases in input prices 18 Accommodation When policymakers increase aggregate demand in response to an adverse supply shock 19 An Adverse Supply Shock as a Cause of Cost-Push Inflation LRAS Price Level C SRAS' SRAS B A AD' AD Real GDP 20 Exhibit 23 -6