lecture16a - Agenda Inflation and the Triangle Model...

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1 16-1 Unemployment and Inflation, Part 3 16-2 Agenda Inflation and the Triangle Model. The DAD – SAS Model. Inflation Adjustment and the Attainment of General Equilibrium. Inflation, Disinflation, and Deflation. 16-3 Inflation and the triangle model Definition of inflation: π t = { ( P t – P t-1 ) / P t-1 } * 100 ¾ Where P is the general price level. 16-4 Inflation and the triangle model Three explicit factors for explaining inflation. ¾ Called the triangle model. • Inflation, π , depends on 3 components: ¾ Inflationary expectations, π e . ¾ Excess demand, π ED . ¾ Inflation shocks, π Z .
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