Macromodelling

The expections-augmented Phillips curve Part ii 1. P = Pe + g (y ? y*) 2. R = a1 . y ? a2 . (m ? p) 3. r = R - Pe 4. y = b0 ? b1 . r 5. p = Lp + P Equation 1 is derived directly from the vegetable marrow of the expectations-augmented Phillips curve. It states that existing flash is equal to expected inflation when the unemployment lay is at the inseparable level. In other words, the unemployment enume wrap differs from the natural rate when expected inflation does not equip actual inflation. Unemployment is then substituted with output, y, and we end at equation 1. (See only story below). The parameter g de bourneines how much a variation between output and potential output affects the inflation rate. In the model, y is the record of gross domestic product. This makes sense, because we are commonly interested in dower increases in GDP. Using the log get means that a steady growth gives a linear work, whereas without the log form we would have to use an exponen tial functional form. Equation 2, where R is the nominal interest rate, m is the log of the money line of descent and p is the log of the price level, states that the nominal interest rate is a function of GDP and the growth of the money depot and the price level. The startle part of the equation (a1.y) means that when GDP increases this tends to push up R by the factor a1. The term (m - p) is the var. of real follow money balances. If prices are growing at a higher(prenominal) rate than the money old-hat, the stock of real money balances pull up stakes decrease, and thus the nominal interest rate will increase. Equally, when the stock of money is growing faster than prices, the stock of real money... If you destiny to get a full essay, club it on our website: BestEssayCheap.com

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