EC250 Chapter Notes - Chapter 10: Real Interest Rate, Nominal Interest Rate, Demand Shock
Document Summary
Recovery from great recession was slow due to: u. s. economic weakness, european debt crisis, concern that economic problems in europe could spread to canada, slowdown in the bric countries. The is mp model analyzes determinants of real gdp, the inflation rate, the unemployment rate and the real interest rate in the short run. Key idea: changes in aggregate expenditure cause changes in real gdp. Model helps us understand why economic fluctuations occur and how policymakers use fiscal and monetary policy to reduce the severity of recessions. Model assumes price level is fixed (implies horizontal short-run aggregate supply) Is curve: a curve in the is mp model that shows the combination of the real interest rate and aggregate output that represents equilibrium in the market for goods and services. Mp curve: a curve in the is mp model that represents bank of canada monetary policy.
