Beruflich Dokumente
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CHAPTER9
Inflation, Activity,
and Nominal
Money Growth
Prepared by:
Fernando Quijano and Yvonn Quijano
Macroeconomics, 4/e
Olivier
9-1
Output, Unemployment,
and Inflation
This chapter characterizes the economy by three
relations:
Okuns Law, which relates the change in
unemployment to output growth.
The Phillips curve, which relates the changes
in inflation to unemployment.
The aggregate demand relation, which relates
output growth to both nominal money growth
and inflation.
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Okuns Law
ut u
t1
yt
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Okuns Law
ut u
t1
0 .4 ( g
yt
3% )
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Okuns Law
Figure 9 - 1
Changes in the
Unemployment
Rate Versus Output
Growth in the
United States since
1970
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Okuns Law
ut u
t1
0 .4 ( g
yt
3% )
yt
3 % , th e n u t u
t1
0 .4 ( ) 0
If g
yt
3 % , th e n u t u
t1
0 .4 ( ) 0
If g
yt
3 % , th e n u t u
t1
0 .4 ( 0 ) 0
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Okuns Law
ut u
t1
0 .4 ( g
yt
3% )
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Okuns Law
ut u
t1
0 .4 ( g
yt
3% )
ut u
t1
(g
yt
gy)
yt
ut u
t1
yt
ut u
t1
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(u t u n )
t1
(u t u n )
ut un t
t1
ut un t
t1
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A D R e la tio n Y t Y
,G t,Tt
Pt
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1981-2003
United States
0.39
0.39
United Kingdom
0.15
0.54
Germany
0.20
0.32
Japan
0.02
0.12
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M t
Yt
Pt
Keep in mind this simple relation hides the
mechanism you saw in the IS-LM model:
An increase in the real money stock leads to
a decrease in the interest rate.
The decrease in the interest rate leads to an
increase in the demand for goods and
therefore, to an increase in output.
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9-2
ut ut
( g yt g y)
(u u )
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Figure 9 - 2
Output Growth, Unemployment,
Inflation, and Nominal Money
Growth
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(gm-) 3.0
Year 1
Year 2
Year 3
0.5
5.5
3.0
2 Output growth %
(gy)
3.0
0.5
5.5
3.0
3 Unemployment rate %
(u)
6.0
7.0
6.0
6.0
4 Inflation gate %
()
5.0
4.0
4.0
4.0
5 (Nominal money
growth) %
(gm)
8.0
4.5
9.5
7.0
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9-3
Disinflation
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A First Pass
t1
(u t u n )
( t
t1
) 0 (u t u n ) 0 u t u
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A First Pass
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A First Pass
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A First Pass
t1
(u t u n )
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Figure 9 - 3
Disinflation Without
Unemployment in
the Taylor Model
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1970-1985
Figure 1
The Federal Funds Rate
and Inflation, 1979-1984
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1970-1985
1980
1981
1982
1983
1984
1985
GDP growth
2.5
0.5
1.8
2.2
3.9
6.2
3.2
Unemployment rate
5.8
7.1
7.6
9.7
9.6
7.5
7.2
CPI inflation
13.3
12.5
8.9
3.8
3.8
3.9
3.8
Cumulative unemployment
1.0
2.6
6.3
9.9
11.4
12.6
Cumulative disinflation
0.8
4.4
9.5
9.5
9.4
9.5
Sacrifice ratio
1.25
0.59
0.66
1.04
1.21
1.32
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Key Terms
Okuns law
normal growth rate
labor hoarding
adjusted nominal money
growth
disinflation
point-year of excess
unemployment
sacrifice ratio
Lucas critique
credibility
nominal rigidities
staggering of wage decisions
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