Krugman r wells and a myatt macroeconomics gustavo

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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 find employment: LF N u= LF When the economy is at potential GDP, we say that there is full employment However, there is also some unemployment at the level of potential GDP due to: 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 money 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 services © 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 capital account The current account records mainly the buying and selling of...
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