Macroeconomics- IS- MP- PC Model 0.0 / 5 ? Economicsismppc modelUniversityNone Created by: amyclaireCreated on: 09-05-19 16:03 MP Curve rt=p+m(pi- pi bar), x axis output gap, y axis real interest rate 1 of 15 Rt Today's real interest rate 2 of 15 p natural level of interest/marginal product of capital/equilibrium interest rate 3 of 15 m how much the central bank allows the interest rate to respond to inflation fluctuations 4 of 15 Pi(t) Todays inflation 5 of 15 Pi bar Potential inflation 6 of 15 IS Curve xt=a-b(rt-p), x axis output gap, y axis real interest rate 7 of 15 xt Output gap 8 of 15 a demand parameters 9 of 15 b sensitivity of investment to changes in interest rate 10 of 15 rt real interest rate 11 of 15 p MPK- additional output from 1 extra unit of capital 12 of 15 PC Pi t= Pi t-1 + yxt+ n, x axis output gap, y axis change in inflation 13 of 15 y How sensitive inflation is to demand/ economic conditions (high= price setting sensitive to economy) 14 of 15 n Supply side shock eg. oil shock 15 of 15
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