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Unformatted text preview: variables-the money supply cannot effect the real variables-Equilibrium output is the real GDP-If there is a change in the GDP deflator, that means there was a change in every product on average Y = C + I + G + NX where g is fixed Wealth effect Suppose P rises-the dollars people hold buy fewer goods and services o Real wealth is lower o People feel poorer Consumption falls Therefore, Real GDP goes DOWN Interest rate effect-Buying goods and services requires more dollars o To get these dollars, people sell bonds or other assets Decreasing savings-spiking the interest rate-decreasing investment-Real GDP falls Exchange rate effect-Increase in prices-Increase the real interest rate o NCO decreases (this is the line that is vertical)-Real exchange rate goes up (this is NX on the same graph as the vertical NCO)...
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This note was uploaded on 01/14/2012 for the course ECON 002 taught by Professor Eudey during the Fall '08 term at UPenn.
- Fall '08