CLASSICAL_INFLATIONclass

CLASSICAL_INFLATIONc - 1 1 Classical/Monetarist LR Model Full employment in LR Self-adjusting economy Y=f(K,L natural rate of unemployment

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Unformatted text preview: 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? 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 3...
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This note was uploaded on 03/24/2011 for the course ECON 103 taught by Professor Lin during the Summer '08 term at Rutgers.

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CLASSICAL_INFLATIONc - 1 1 Classical/Monetarist LR Model Full employment in LR Self-adjusting economy Y=f(K,L natural rate of unemployment

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