Class Notes - 11-2-07

Class Notes - 11-2-07 - Macroeconomics Class Notes 11/2/07...

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Macroeconomics – Class Notes – 11/2/07 Bonus Points: October bls.gov update: 1.) How many New jobs created 2.) New Unemployment rate EQUATION: (Money supply) * (Velocity) = (Price level) * (measure real output) o TESTED ON EXTREME VERSION : Velocity and real output can be considered to be fixed INDIRECT WAY OF GOVERNMENT INTERVENTION: Crowding out – government spending is more than the tax take (budget deficit) o Higher interest rate will cause people to hold onto their money (deposits) Main importance is price level o More relaxed version Velocity increases when interest rate ? Increases Open or Closed Economies Closed Economy : o No exports, no imports, and no capital flows Open Economy : o Economy interacts freely with others Costs of Inflation: “Shoeleather Costs” When you have high inflation (20-25%) – People tend to put more of their money in banks o Nominal interest rate = real interest rate + inflation rate
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Class Notes - 11-2-07 - Macroeconomics Class Notes 11/2/07...

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