•
Problems
o
Inflation can lead to hyperinflation
o
Price changes are only nominal
o
One person’s gain is another’s loss
o
Unemployment is therefore worse that inflation
•
Conservative viewpoint is that economy will self-adjust and take care of itself
•
Liberal viewpoint is that economy will self-adjust, but it will take an extremely
long time, so we should inject it with something to help adjust sooner
•
Money supply up, interest down, investment up, consumption up, aggregate
demand up, GDP up…and the inverse is true, this is known as the Keynesian
theory
•
Monetarists say that MV=PY
•
MV= money supply and velocity of circulation (how often a dollar changes
hands)= total expenditures
•
PY= prices and output= nominal GDP (aggregate supply)
•
The result in this equation is that a % change in money supply leads to the same
% change in nominal GDP
•
In our economy unemployment cannot exist for a long time provided that wages
are allowed to adjust
•
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- Fall '07
- ABDULLAH
- Economics, Macroeconomics, Inflation, Monetary Policy, Unemployment, Keynesian economics, Gov't Spending
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