ECON 102 Lecture Notes - Lecture 26: Nominal Interest Rate, Fisher Equation, Imperfect Competition

• School: U of M
• Department: Economics
• Course: ECON 102
• Professor: Miles Kimball

Document Summary

The fisher equation in the lr and sr: r=i- . The zero lower bound on the nominal interest rate and how it can be swept away: why the natural level of output is too low. Trying to get output higher than the natural level causes inflation (the phillips curve, the output-inflation graph and the sacrifice ratio) The costs of inflation: optimal monetary policy rule: stay at yn. The three functions of money: medium of exchange (to buy with, unit of account (to measure with, store of wealth (to save with) Why the natural level of output is too low. Imperfect competition makes mr < p: mrpl=mr mppl < p mppl, w=mrpl. For example, suppose that i can make 10 widgets an hour, each selling for , but that mr = . 60. The marginal tax rate makes the after tax wage (1- )w < w.