EC140 Chapter Notes - Chapter 29: Monetary Policy, Bacteriostatic Agent, Nairu
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EC140 Full Course Notes
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Inflation: rise in the average level of all prices. Why wages change: wages and the output gap. In between jobs: when y > y*, ue rate is less than nairu (u < u*) inflationary. Gap: when y < y*, ue rate is greater than nairu (u > u*) , wages and expected inflation. Recessionary gap: expectations of a specific inflation rate creates pressure for nominal wages to rise by that rate, overall effect on wages, changes in nominal wages = output gap effect + expectation effect, ex. If output gap effect causes 1% decrease in wages and people expect them to rise 2%, causing management to allow 2% wage increase, the change in nominal wages rises by 1% (-1 + 2) From wages to prices: output gaps and inflation expectations affect what happens to the as curve. Change in prices of materials/inputs: actual inflation = output gap inflation + expected inflation + supply shock inflation.
