ECON282 Lecture Notes - Lecture 36: Real Interest Rate, Capital Outflow, Output Gap
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13 Apr 2018
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An unexpected shock that causes that causes a movement a long the curve. When output goes up or down, it is a shift along the philips curve. If businesses become pessimistic with future sales the real interest rate _____no change___________, the output gap __falls_____________, and inflation _rises____. A change in inflation expectation impacts (shifts) the mp curve and the philips curve. If dp/tse/nominal interest rates increase/decrease, it will shift the mp curve up/down but not the philips curve ( it will be a movement along the philips curve) Example: suppose the economy is in equilibrium with an output gap equal to zero and the actual inflation rate equals the expected inflation rate. If the federal government increases infrastructure spending and the central bank intervenes to ensure inflation does not change, the overall effect will be real interest rates ___increase_____ and the output gap __no change _. Is-mp in an open economy with a flexible exchange rate:
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i) | The aggregate demand curve shows
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