ECON 1100 Chapter Notes - Chapter 12: Output Gap, Real Interest Rate, Disinflation

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Aggregate demand curve (adi): shows the relationships between short-run equilibrium output y and the rate of inflation ( ) Monetary supply rule: describes how the action a central bank takes in response to changes in the state of the economy depends on the state of the economy. Inflation adjustment curve (ia): a horizontal line showing the current rate of inflation, as determined by past expectations and pricing decisions. Long-run aggregate supply curve (lras): a relationship between potential output and the inflation rate; a vertical curve indicating that potential output is independent of the inflation rate. Long-run equilibrium: a situation in which actual output equals potential output and the inflation rate is stable (where adi and the ia, and lras intersect) Short-run equilibrium: a situation in which inflation equals the value determined by past expectations and pricing decisions and output is consistent with output of that inflation rate (where adi and ia intersect)

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