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10 Cards in this Set
- Front
- Back
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SR model consists of 3 basic equations |
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SR model implies that high SR output... |
leads to an increase in inflation |
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Monetary Policy Rule |
a set of instructions that determines the stance of monetary policy for a given situation that might occur in the economy |
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if inflation > target |
real int rate should be set high in order to bring avg inf down |
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if inflation < target |
real int rate should be set low in order to boost the economy out of recession |
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monetary policy equation |
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parameter m bar |
governs how aggressively monetary policy authorities respond to changes in the economy (via changes in inflation) ~if focus shifts to SR goals of stabilizing output, this parameter will be smaller |
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AD curve |
~sub the monetary policy rule into IS curve ~resulting eqt'n shows that SR output is now a fxn of the rate of inflation ~describes how the CB chooses SR output based on the rate of inf |
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a change in inflations is a movement... |
along the AD curve b/c inf is on the vertical axis
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higher inf drives int rate up and pulls down on the quantity demanded for invest goods which, in turn, pulls down on SR output |
changes in m bar alter the slope of the AD curve and indicate a change in aggressiveness of monetary policy in terms of inf |
