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Econ 2305: Mixed
Nominal Variables |
$ Money or Price Cost |
Real Variables |
Real Physical Cost |
Relative Price |
Physical cost too |
Velocity |
=Price of Output x Quantity of Output / Quantity of Money
=P x Q / M |
Price Level |
=Quantity of Money x Velocity of Money / Quantity of Output
=M x V / Y |
Impact of gov.s decisions to raise revenue by printing money has on the value of the money in Eleanors wallet is known as |
Inflation Tax |
Nominal Interest Rate |
Real Interest Rate+Inflation Rate |
NIR |
=RIR+INFLR |
After-Tax Nominal Interest Rate |
=NIR-(INFLR*NIR) |
After-Tax Real Interest Rate |
=After-Tax NIR-INFR |
Expected Real Interest Rate |
=NIR-Expected IR |
Actual Real Interest Rate |
=NIR-Actual INFLR |
3 Ways to Get GDP: |
=C+I+G+(X-M)
=C+I+G+NX
|
If Fed prints more money |
Prices go up |
The Fisher Effect |
NIR=Infl+RIR |
The Fisher Effect is when |
INFL GOES UP
NIR GOES UP |
QUANTITY EQUATION |
M*V=P*Y |
QUANTITY EQUATION EFFECTS: |
IF Money goes UP-->Price goes UP
IF Money & Velocity goes UP-->Price & Y(output) UP |
Price & Value |
Price Level goes Up
Value of Money goes down |
4 Tools of Central Bank Uses to Control MS |
Direct Loaning to Banks
Reserve Requirements
Open Market Operations
Paying Interest on Reserves |
Tax Distortions |
=Inflation makes Nominal grow faster than Real Income |
Real Wage |
Unchanged |
Assets |
Reserves
Loans
Securities
(RLS) |
Liabilities |
Deposits
Debt
Capital Owners Equity
(DDC) |
Trade Surplus |
X > M |
Trade Deficit |
M > X |
Trade Deficit
effects: |
X < M
NX < 0
Y<C+I+G
S < I
NCO < 0 |
Balanced Trade effects: |
X = M
NX=0
Y=C+I+G
S=I
NCO=0 |
Trade Surplus effects: |
E > M
NX > 0
Y > C+I+G
S > I
NCO > 0 |
Real Expected Rate |
=NER*DP/Foreign Price |
E
|
e x p / p* |
3 Facts Fluctuations: |
Econ Fluctuations are irregular & unpredictable
Most Macroeconomic Quantities Fluctuate together
As outputs falls unemployment rises |