ECO100Y5 Chapter Notes - Chapter 25: Ceteris Paribus, Pearson Education, Potential Output

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12 Mar 2014
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ECO100Y5 Full Course Notes
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Chapter 25 - difference between short-run and long-run macroeconomics. Gdp = f x (fe/f) x (gdp/fe: f is the amount of factors, fe is the amount of employed factors. Recognize the different short-run and long-run effects of monetary policy. Ceteris paribus, an increase in inflation pushes up nominal interest rates. In the short run, the rise in interest rates causes aggregate expenditure to fall, reducing output. The bank of canada argues that: in order to reduce inflation and interest rates, the bank must take actions which raise the interest rate immediately. But in the long run, the downward pressure on wages (recessionary gap) causes inflation to fall, and interest rates too. For the decade following 1990, japan"s economy was stagnant. Some argue there was too much saving (and too little spending). In the short run, an increase in desired saving leads to less aggregate desired spending economic slump. Many also argue that japan"s economic success since.

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