POLS 489 Lecture Notes - Lecture 7: Real Interest Rate
7 Oct 2016
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Y i t = y + it it^e + nit i = incumbent t = today. Line above y = average (natural growth rate) What everyone had hoped or expected the world to look like. Expectation of inflation, where individuals base decisions on. Expected interest rate is the average interest rate or real interest rate. Shocks = items that are within or out of the government control (disasters, stock market, etc. ) Things that can happen, reasons for economic growth or decline. Nit = eit + et: eit = competency shock. The ability in which the incumbent administers the bureaucracy: et = exogenous shock. Shocks not at the hand of the incumbent: page 132. People know and can make decisions based on the incumbents past decisions, but cannot know or understand upcoming decisions that could affect future economic decisions) Inflation = the overall rise in prices, or change in value or availability in currency.
