ECON 295 Chapter Notes - Chapter 25: Ceteris Paribus

• School: McGill University
• Department: Economics
• Course: ECON 295
• Professor: Paul Dickinson

Document Summary

Chapter 25: the difference between short-run and long-run macroeconomics. Since returns come in the future, incentive for investors & Savers is real interest rate. (cid:2187)(cid:2183)(cid:2194)=(cid:2196)(cid:2197)(cid:2195)(cid:2196)(cid:2183)(cid:2194) (cid:2196)(cid:2188)(cid:2194)(cid:2183)(cid:2202)(cid:2197)(cid:2196) (cid:2174)(cid:2183)(cid:2202)(cid:2187) pushes nominal interest rates) Nominal rate must w/ inflation to keep same real rate ( ceteris paribus, in inflation. An apparent paradox: the bank of canada argues that. If it wants to inflation & interest rates in the future, It must interest rate now/immediately (tighten credit conditions) Interest rates must be ed in order to them! In sr, in (real & nominal) interest rates causes aggregate expenditure to by ( in sr, in ir causes ae to , ing output): ing invest. (some projects become unprofitable), ing. Consumption (opp cost of current consumption has risen), thereby & ing ad, ing prices, & This would create (or size of) recessionary gap. In lr, inflation & nominal ir are lower. For 1990s decade, japan had stagnant economy.