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ECON 209 Lecture Notes - Lecture 5: Ceteris Paribus, Potential Output, Money Supply

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copperotter197
23 Nov 2017
School
McGill University
Department
Economics
Course
ECON 209
Professor
Mayssun El- Attar Vilalta

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Document Summary

Chapter 25 - the difference between short-run and long-run macroeconomics. Saving and growth in japan: for the decade following 1990, japan"s economy was stagnant. A need to think differently: short-run, emphasize changes in output as deviations from potential, limited price and wage adjustment, long-run, emphasize changes in output as changes of potential, considerable wage and price adjustment takes place. E: f is the amount of factors, fe is the amount of employed factors. What are the three separate terms? factor supplies - supplies of labour and capital change only gradually (long-run impact) 1: productivity - productivity changes only gradually (long-run impact) Also, an increase in the labour-force participation capital: changes in the rate of investment generate changes in the economy"s capital stock. Gdp accounting: an application: consider just one factor of production - labour, l is the labour force, e/l is the employment rate (e is employed factors, gdp/e is a simple measure of labour productivity.

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Related Questions

Assume an economy with floating exchange rates, price level is 100, exchange rate is 20, money supply is 10 million. Then suddenly the central bank increases money supply with 100% and keeps money supply at that (higher) level permanently. Calculate real money supply (M/P) in the long run, nominal exchange rate in the long run and expected exchange rate. Describe what happens with nominal interest rate in the short run and in the long run and describe the development of the nominal exchange rate from short to long run.

Suppose that the Fed permanently increases the growth rate of the money supply. According to the Friedman effect as discussed in class, what will happen to both nominal and real interest rates in the short-run? In the long-run? Explain why.

Why does the monetary policy curve slope​ upward? ​(check all that​ apply.)

a. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.

b. When inflation​ increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money​ market, which also increases the real interest rate in the short run.

c. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.

d. When inflation​ increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money​ market, which also increases the real interest rate in the short run.