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CLASSICAL_INFLATIONclass

CLASSICAL_INFLATIONclass - Classical/Monetarist LR Model...

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1 1 Classical/Monetarist LR Model Full employment in LR Self-adjusting economy Y=f(K,L) natural rate of unemployment LRAS Vertical at natural rate output level **Money supply->P only** Classical Dichotomy/ Neutrality of money No Role for Fiscal or Monetary Policy Crowding out - G up I down Not needed – self-regulating - full emp. M->P only thru Quantity Theory of Money Real factors determine real variables K,L->y,Unemp S&I-> real int rate M->P and nominal int rate, nom W Classical Dichotomy – Neutrality of Money LR Phillips curve is vertical SR curve shifts up with expectations 2 Keynesian Review 3 In the News?
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2 4 Course Issues Stern Lecture Quiz 3 appalling 8 0’s, 20<2, mean 1.83, std dev 1.5 Grades based on performance NOT effort, need, etc Listening is not Learning Question, test your self repeat Investment Game Round 3– Tuesday Quiz 3 answers posted Gradebook EC -25 points 5 Why? Say’s Law S->D What about S not = I? Loanable Funds Theory S & D for LF ->ireal and thus S=I at full employment Flexible Wages and Prices price rather than output adjustment Quantity Theory of Money MV=Py M->P only since V const and y at fe 6 Say What? Economy tends to full employment potential gdp=natural rate level of output LR No ‘general glut’–if you produce it they will buy it Can’t have too little agg demand desired I=S always – loanable funds theory Real forces of productivity, amount of capital, labor force determine output Business Cycle Fluctuations temporary automatic adjustment thru price No need for policy, and of no use
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