ECON103 Study Guide - Midterm Guide: Nominal Rigidity, Supply Shock, Unemployment Benefits
Document Summary
Deflation: opposite of inflation, not necessarily a positive outcome because it is opposite: deflation: incentive to hold money because the general level of prices decline money is gaining. Inflation: money loses purchasing power incentive to spend it faster. 1 purchasing power over time as economy goes through deflation period expect reduction in amount of spending: reduction in c of the gdp components gdp falls bad things will happen after 2 quarters of. Macroeconomy: spending component of gdp = c + i +g +x. Immediate, short, and long run definitions: short run: prices are sticky no rapidly changing price levels when experiencing shock the. Immediate run: macroeconomy will not see price levels changing shocks in short run will stay in dis-equilibrium for some time because of sticky prices price adjustments occur very slowly. Effect of economic shocks will be different in long run vs. short run!
