Chapter 25

Chapter 25 - Chapter 25 Two example to illiterate the very...

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Chapter 25 Two example to illiterate the very different dynamics of Macroeconomic long run and macro short run: Inflation and interest rates in Canada Paribus an increase in inflation pushes up nominal interest rates The Bank of Canada argues that: to reduce inflation and interest rates, the Bank must take actions which raise the interest rate immediately. – trends shows that inflation and nominal interest rates are together due to real interest rates increasing with inflation – in the short run, in order to minimize inflation, you need to rise in interest rates causes aggregate expenditure to fall, reducing output. In the long run, the downwards pressure on wages causes inflation to fall, and interest therefore fall. Saving and growth in Japan For the decade following 1990, Japan’s economy was stagnant. Some argue there was too much saving. Many also argue that Japan’s economic success since WWII was due in part to its high saving rates. To understand this you need to understand long run and short run effects.
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This note was uploaded on 04/07/2009 for the course ECON 295 taught by Professor Ragan during the Spring '08 term at McGill.

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Chapter 25 - Chapter 25 Two example to illiterate the very...

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