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Unformatted text preview: 2-1-08Ch. 7: at full employment -Nominal variables:oVariables measures in terms of dollars (currency)oNominal GDPoPrice level, inflation rate (derive from units of currency)oNominal wage rate, nominal interest rateNominal wage rate = payment to workersNominal interest rate = payment to capital-Real variablesoVariable measured in terms of unit of goods and servicesoReal GDP, real wage rate, real interest rateReal GDP = measure productionReal interest Rate = payment to capitalConsumption, saving, investment (all in real value)Consumption = house hold spending-Classical dichotomyoAt full employment, the forces that determine, the real variable are independent of these that determine the nominal variableoAdam Smith and others old economists are classicaloClassical model: focuses on equilibrium situation (efficient)oNo worry about price = productivity is the thing that matters-Classical modeloModel of economy that determines the real variables at full employment-Labor market...
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- Spring '09
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