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Aggregate demand with inflation
In previous versions of Keynesian model, Components of aggregate demand did not depend on P. In IS-LM and in AS-AD models, investments depended on nominal interest rate R.
We argued that investment in fact relies on the real interest rate r but as R = r when πe = 0, we could make it a function of R.
When πe no longer is zero and real interest rate r = R - πe, we must write I(r) or I(R - πe). We must also write YD(Y, r) or YD(Y, R - πe). As inflation expectations are exogenous (given), it's still the case that YD relies negatively on R. Please note that if there is an equal increase in expected inflation and in nominal interest rate, real interest rate is unaffected and so is aggregate demand andinvestments.
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P and Y are both endogenous variables and according to the quantity theory of money we need P.Y = constant. If we divide both sides by P we get Y = constant / P. Because Y = Y D i
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It is online assignement, Can u do it?
1. Estimating Women's Labor Supply a. The following regression was run for an estimate of the current women's labor supply curve: Where h i = hours of labor suppl
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