Lecture 11 Outline

Lecture 11 Outline - III E XAMPLES A A Massive Fall in...

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Economics 134 Professor Christina Romer Spring 2012 Professor David Romer LECTURE 11 EXTENDING THE IS/MP/IA FRAMEWORK FEBRUARY 21, 2012 I. I NTRODUCTION II. T HE IS-MP-IA M ODEL E XTENDED A. Assumptions 1. The nominal interest rate can’t be negative 2. In the basic model, expected inflation equals actual inflation 3. Discussion B. The AD Curve 1. Where we are headed 2. The IS-MP diagram 3. Deriving the AD curve C. A Little Bit about the Case of Money Targeting
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Unformatted text preview: III. E XAMPLES A. A Massive Fall in Planned Expenditure 1. The initial situation 2. The shock 3. The dynamics of the economy 4. What happens when there is a rebound in planned expenditure 5. How seriously should we take this? B. The Importance of “Using Rather than Saving Your Ammunition” 1. The initial situation 2. What happens if the central bank “saves its ammunition” 3. How the central bank can avoid this outcome...
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