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Unformatted text preview: avo Indart Slide 14 Inflation and Deflation Source: P. Krugman, R. Wells and A. Myatt, Macroeconomics.
© Gustavo Indart Slide 15 Rate of Unemployment
The unemployment rate is the fraction of the labour force that cannot
When the economy is at potential GDP, we say that there is full
However, there is also some unemployment at the level of potential GDP
Frictional unemployment: New people entering the labour force and
others looking for better jobs
Structural unemployment: Mismatch between the characteristics of
labour supply and the characteristics of labour demand
The unemployment rate at the level of full employment is called the
natural rate of unemployment
The difference between the actual level of unemployment and the natural
level of unemployment is called cyclical unemployment
© Gustavo Indart Slide 16 The Unemployment Rate Source: P. Krugman, R. Wells and A. Myatt, Macroeconomics.
© Gustavo Indart Slide 17 Rate of Interest
The interest rate is the price paid to borrow money for a
given period of time
The nominal interest rate is the money price of borrowing
The real interest rate is the price of borrowing money in term
of purchasing power, and is equal to the nominal interest rate
minus the rate of inflation
The burden of borrowing money depends on the real, not the
nominal, rate of interest
The level of interest rates affects investment decisions and
the consumption of expensive consumption goods and
© Gustavo Indart Slide 18 Balance of Payments
The balance of payments is the record of transactions of the
economy with the rest of the world
The overall balance of payments is the summation of the
balances of two main accounts: the current account and the
The current account records mainly the buying and selling of...
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