Analysing Unemployment

Question 1

What is the fisher equation?

Answer 1

MV = PT

Question 2

What does MV = PT mean?

Answer 2

M = Money supply
V = Velocity of circulation
P = Average price of transactions
T = Total number of transactions

Question 3

What is the quantity theory of money?

Answer 3

MV = PT
• M rises
• V immediately falls
• T starts to rise as M funds additional spending
• Additional demand causes P to rise
• T eventually falls due to P rise - back to start level
• V increases due to increase in PT - back to start level
• T & V assumed to be constant

M = P

Question 4

What is a static expectation?

Answer 4

Economic agents ignore the fact that inflation can change

Question 5

What is an adaptive expectation?

Answer 5

Economic agents believe the future will be like the immediate past

Question 6

What is a rational expectation?

Answer 6

Economic agents predict the future by using all available information

Question 7

What are the factors of rational expectations?

Answer 7

• Past inflation
• Other economic factors
• Fiscal policy
• Monetary policy
• Any relevant information