Indart slide 8 growth in aggregate output source p

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Unformatted text preview: he output gap is called inflationary gap © Gustavo Indart Slide 8 Growth in Aggregate Output Source: P. Krugman, R. Wells and A. Myatt, Macroeconomics. © Gustavo Indart Slide 9 Growth in Aggregate Output Source: P. Krugman, R. Wells and A. Myatt, Macroeconomics. © Gustavo Indart Slide 10 Real GDP per Capita Source: P. Krugman, R. Wells and A. Myatt, Macroeconomics. © Gustavo Indart Slide 11 Output Gap (Percent of Potential Output) Source: Trading Economics. © Gustavo Indart Slide 12 Rate of Inflation rate of infla.on in macroecon The inflation rate is the percentage rate of increase of the level of prices during a given period: P P1 = P1 To measure the rate of inflation, we can calculate the Consumer Price Index (CPI) The CPI shows the change in the price level taking into account a constant basket of goods: Value of basket of goods in current prices CPI = x 100 Value of basket of goods in prices of base period © Gustavo Indart Slide 13 Rate of Inflation (cont’d) Inflation matters because it erodes the value of money and the value of fixed incomes Inflation also creates uncertainty in the economy and makes more difficult to make forecasts to facilitate long run economic decisions such as investment expenditure Fully anticipated inflation has no effect on real economic variables because it is incorporated in all financial contracts Unexpected inflation, on the other hand, favours debtors and harms creditors © Gust...
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This note was uploaded on 03/28/2014 for the course ECON 100 taught by Professor Carr during the Summer '10 term at University of Toronto.

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