FNCE 101 Lecture 8: 4.13.15 Notes
Document Summary
Expectations catch up: in the lr, the fed wants to be on target: economy moves as up back to y > inflation goes up even more, n(d) increased > as increases (shifts left, higher expectations for inflation increases, employment falls relevant to the peak, the fed is not happy here bc inflation > pi bar; even though the economy technically can stay here forever, according to taylor equation, pi pi bar = positive and y y bar = 0, so fed will increase r to kill off inflation. Weird lines: bumpier line= fed is slower at responding, pi: ad increases mean pi first it increases > when expected inflation = inflation, pi goes up even more > when fed starts adjusting pi, pi starts decreasing, y: output sharply goes up and decreases as pi increases; fed has to make sure y doesn"t decrease even more, r: no interest rates on the graph, but theres" inflation and output.
