Teil 3

Question 1

AS-Curve

Answer 1

• upward sloping
  
  • as output is rising so does the rate of inflation

1. Wage Bargaining: Implies that unions demand higher wage growth when

• inflation expectations increase
• labour productivity increases
• output produced is above long-run ouput (low unemployment)
• Wage grothw depends positively on Y

2. Supply Shocks

• Changes in non-labor cost of production
  
  • intermediate inputs
  • physical capital

Question 2

Explane:

Upward sloping AS-Curve

Answer 2

As Output is rising:

-> Unemployment falls

–> stronger wage bargaining position of the employees

—>higher Wages

—->higher cost of production

—–>firms charge higher prices

——->higher rate of inflation

Question 3

AD-Curve (Normal B.C Outcome)

Answer 3

• negative relationship between inflation and output (downward sloping)

Question 4

Explaine

Downward sloping AD-Curve (Normal B.C. Outcome)

Answer 4

As the rate of inflation increases

-> Central Bank increases the r^mp following the taylor rule

–> r increases

—-> Crowding Out Effect

—> Lower Output

Question 5

Shift of the AD-Curve

Answer 5

• When any EXOGENOUS Variable of the IS-TR modell changes

Question 6

Inflation Expectations

Answer 6

Static: π^e_{t =} π^e

Adaptive: π^e_{t =} π^e_t-1

• adjust one-to-one to the previous period actual rate of inflation
• Medium-Run Model is Dynamic
• Achtung: Quantative Analysis

Question 7

ZLB Level of Output

Answer 7

• Depends NEGATIVELY on the rate of inflation
  
  • When π decreases the CB stes the monetary policy rate to be lower and will thus reach the ZLB R^MP at a higher level

Question 8

Extended Risk Premium

= r-r_y*(Y-Y_π^ZLB)

Answer 8

Depends Negatively on the rate of inflation

= r-r_y*Y + r_yY_π^ZLB

• when Inflation decreases the comm. bank demand a higher risk premium
  
  • Economy moves further away from normal times since Y^ZLB increases