Phillips Curve (4/18)

Phillips Curve (4/18)

• In the Short Run, the Phillip's Curve represents the Trade-Off btwn Inflation (π%) and Unemployment (Un%)
• It is an inverse relationship (π%↑,Un%↓)
• Each point of the PhC corresponds to different lvls of output

• In the Long Run PhC, it occurs at NRU(4%-5%)
• represented by a vertical line
• no tradeoff btwn π% and Un%
• in LRPC, the economy produces at Full Employment output lvl
• LRPC only shifts when LRAS shifts
• Un↑,LRPC→ ; Un↓, LRPC←

 

Monetary Policy Video - Scenario 2

4/3 - 4 Monetary Policy Reltionships

• Expansionary - Recession and Easy $
• OMO - buy bonds
• Reserve Requirement - ↓
• Discount Rate - ↓
• Bank Reserves - ↑
• Money Supply - ↑
• Fed Fund Rate - ↓
• DM - ↓
• i - ↓
• Ig - ↑
• AD - ↑
• GDPr - ↑
• Value of $ - ↓
• Contractionary - Inflation and Tight $
• OMO - sell bonds
• Reserve Requirement - ↑
• Discount Rate - ↑
• Bank Reserves - ↓
• Money Supply - ↓
• Fed Fund Rate - ↑
• DM - ↑
• i - ↑
• Ig - ↓
• AD - ↓
• GDPr - ↓
• Value of $ - ↑

4/3 Loanable Funds Market

4/3 Loanable Funds Market

Quick Question: Is an interest rate of 50% good or bad?

1. Bad for Borrowers
2. Good for Loaners

loanable funds mrkt is the private sector supply and demand of the loans the mrkt brings together those who want to lend money (savers) and those who want to borrow (firms w/ investment spending projects)

mrkt slows effect on Real Interest Rate

1. Demand - Inverse relation btwn real interest rate and quantity loans demanded
2. Supply - Direct relation btwn real interest rate and quantity loans demanded
3. not shown on $Mrkt(Supply not vertical)

Prime Rate - interest rate that banks charge their most credit-worthy customers (700 - 800 get prime)