Week 11: Macroeconomic Equillibrium Flashcards
1
Q
What does MP Curve show?
A
Illustrates the current real interest rate = real policy interest rate + risk premium.
2
Q
What does IS curve show?
A
links the real interest rate to Aggregate Expenditure, which determines the level of output and the output gap.
3
Q
What does the PC curve show?
A
Links the output gap and unexpected inflation.
4
Q
What are Demand shocks and what do they affect?
A
- change in spending
- results in a change in AE
5
Q
What are Supply shocks and what do they affect?
A
-caused by an increase in the cost of production.
- This an increase in unexpected inflation.
6
Q
What are Financial shocks and what do they affect? (Aka demand shocks)
A
- caused by an increase in the interest rate.
- leads to an increase in the risk premium or risk free rate.
7
Q
What are Automatic stabilizers?
A
changes in government spending that adjust as the economy expands and contracts without policymakers taking any deliberate action.
8
Q
A
