ECON 102 Lecture Notes - Lecture 20: Disinflation, Market Clearing, Monetarism
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ECON 102 Full Course Notes
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Usual effects of money on unemployment, and its relation to inflation - the philips. In us experience post-ww2, roughly 1-15% annual inflation. Fast inflation and deflation were typical before 1950. Under bretton woods monetary system (and after its collapse), low, stable, positive inflation has been the norm. Our ad-as model gives us a relationship between unemployment (via production relative to full employment levels) and inflation. Keynesian business cycle model is driven by ad shocks. Productive growth falls below its long run level (resources are utilized below their natural levels) In high-inflation times, the only way to fight inflation is to create a recession, which is clearly not a popular choice. The volker recession of 1982-1983 generated costs - foregone output - equivalent to. One way to formalize the relationship between unemployment and productivity in the us in the post-war era is okun"s law. Okun"s law - cyclical unemployment = -. 5*output gap.
