ECON 102 Lecture Notes - Lecture 20: Nominal Rigidity, Gdp Deflator, Federal Funds Rate

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25 Jul 2018
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Ad (cid:3450) total purchases of all g/s produced in the us. As (cid:3450) total amount produced by firms. Reason why ad curve is negatively sloped: You can either spend or save your money: P(cid:3451) = (1/p)(cid:3449) = c(cid:3449) = y(cid:3449) (wealth effect) This graph does not work in the long run because nominal is affecting real, which only occurs in the short run. Price level (p) is measured by cpi or gdp deflator. 3 reasons ad curve holds true: consumption: p(cid:3451) = y(cid:3449) P(cid:3451) = (1/p)(cid:3449) = md(cid:3451) = c(cid:3449) = y(cid:3449) (wealth effect: investment. P(cid:3451) = (1/p)(cid:3449) = md(cid:3451) = s(cid:3449) = r(cid:3451) = i(cid:3449) = y(cid:3449) (interest rate effect: nx: exchange rate effect. P(cid:3451) = (1/p)(cid:3449) = md(cid:3451) = s(cid:3449) = r(cid:3451) = money is shifted to a country with higher r. = exchange rate of us $ falls because you prefer another currency = our goods become cheaper for other countries = ex (cid:3449) = y(cid:3449)

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