econ101fall11lecture18

econ101fall11lecture18 - Nominal and Real Interest Rates...

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Nominal and Real Interest Rates e e Inflation Real Cost Premium of Funds ominal Interest Rate Real Interest Rate Expected Inflation : : Basic Relationship Definitions iN i  
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e : Interest Rate Observed in Financial markets : Interest Rate relevant for Investment Decisions Assume is constant Changes i Real Interest Rate ( ) Nominal Interest Rate (i) n imply changes in i
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AD-AS Analysis 0 Relax Assumptions: Upward Sloping AS Curve ( , ) Re-introduce Government Activity dis A CC Y P 
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0 Monetary Fiscal Policy Policy Instruments Instrument Open Market Operations by the Fed Amended Aggregate Demand Curve (, , , , , , ,, ) New Feature: d Y DPCI A GTXTRt OMO  
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Open Market Purchase by the Fed Effects on Aggregate Demand & , & Shifts to the Right Open Market Purchase by Fed: FF Y d Ri DD M i iI IE AD   
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Open Market Sale by the Fed Effects on Aggregate Demand & , & Shifts to the Left Open Market Sale by Fed: FF d Ri DD M i iI IE Y AD  
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Open Market Operations: Effects on AD
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Note • Limitation of AD Curve: Effects of OMO on i, M, I & E are in the background
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This note was uploaded on 01/12/2012 for the course ECON AS.180.101 taught by Professor Maccini during the Fall '08 term at Johns Hopkins.

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econ101fall11lecture18 - Nominal and Real Interest Rates...

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