ECON 322 Study Guide - Midterm Guide: Purchasing Power Parity, Nominal Interest Rate, Nominal Rigidity

• School: USC, SC, Carolina, South Carolina
• Department: Economics
• Course: ECON 322
• Professor: Hauk

Document Summary

Savings - investment = net capital outflow = net exports. In the long run, converges to 1. P = price in domestic country; pf = price in foreign country. Is*: y = c(y-t) + i(r*) + g + nx(e) Lm*: m/p = l(r*, y) r = r* + =e[ ] - (u - un) + v = e[ ] + =inflation u = unemployment rate, un = natural unemployment rate v = supply shock. If a small, domestic country runs a budget deficit: If a big, foreign country runs a deficit. If an import tariff is put in place (trade protection) If prices are higher than expected, y would be greater than y. If prices are lower than expected, y would be less than y. If people expect higher prices, sras will shift up. If people expect lower prices, sras will shift down. If s = 1 (all firms have sticky prices)