ECON 209 Lecture Notes - Phillips Curve, Output Gap, Demand Shock
10 Dec 2013
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Document Summary
That wages tend to change in response to both output gaps and inflation expectations. How a constant rate of inflation is incorporated into the basic macroeconomic model. How ad and as shocks affect inflation and real gdp. What happens when the bank of canada validated demand and supply shocks. How the cost of disinflation is measured by the sacrifice ratio. Inflation: a rise in the average level of all prices. Usually expressed as the annual percentage change in the cpi. If firms and workers have difficulty predicting what inflation will be, they have problems determining how wages and prices should be set. Unexpected changes in real wages and relative prices as inflation is different than expected. In our macroeconomic model so far inflation was only temporary. Economy"s adjustment process always pushed economy back toward y*with stable price level. Increases in wages led to increases in unit costs maintained assumption that productivity/technology was constant.
