Real business cycle Flashcards
What is natural level of output?
The natural level of output is level of output in market equilibrium consistent with flexible prices.
What is efficient level of output?
The efficient level of output is the first-best output for the company (pareto-optimal allocation).
What are business cycles?
Business cycles are recurrent periods of expansion and contraction in aggregate economics activity
What does the Philips curve mean?
PC represents the relationship of unemployment rate and inflation.
Based on Keynes: When are government intervention needed?
GI are needed if involuntary unemployment arises.
What does the laissez-faire approach mean in a great recession?
- Crisis is a result of misallocation of resources and over-investment
- Result: Necessity of downward adjustment of prices and wages
What does Steady State mean?
The Steady State is the level of economic activity that arises when we shut down the uncertainty coming from the exogenous total factor productivity process.
What does DSGE mean?
D=Dynamic (they measure economic variables over time)
S=Stochastic (they exhibit fluctuations)
GE=General Equilibrium (they account for all quantities, prices, rents, and wages in the economy)
What are DSGE models?
RBC and New keynesian model are both DSGE models
What does quantitative easing mean?
Quantitative easing is a method, where CB pruchases large stakes of government bonds or other financial assets in order to inject money into the economy and therefore expand economics activity.
What does forward guidance mean?
Forward guidance is a tool of the CB to forecast market expectations of future levels of interest rates.
What does divine coincidence mean?
No trade-off between stabilization of inflation and the stabilization of welfare-relevant output gaps.
