Topic 8: Inflationary Adjustments Flashcards
1
Q
What is the NAIRU? What explains it?
A
Non-accelerating inflation rate of unemployment.
Caused by:
- Generous unemployment benefits.
- Poor education and training.
- Minimum wage laws.
- Obstacles to labour mobility.
2
Q
Show the approximate form of the quantity theory.
A
%ΔM ~= %ΔP + %Δy
or
%ΔM ~= %ΔP + ηy %Δy
Where:
ηy = income elasticity of money
(k assumed constant.)
3
Q
Graph the result of an increase in the level of money supply creation on prices.
A
This is the overshooting result.
4
Q
Show the resulting change to real money balances, and the % change in real money balances that occurs from an increase in the rate of money creation.
A
