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Determine what is the yield curve
The yield curve is a graph of interest rates of different maturity (recalculated to yearly rates) at a particular point in time. It is common for the yield curve to slope upwards (interest rates with longer maturity are generally higher than those with a shorter maturity). The reason for this is that there is a higher demand for loans with longer maturity due to the reduced uncertainty. Many borrowers are prepared to pay a premium to avoid fluctuations in the interest rates.
If the market expects higher interest rates, then the slope of the yield curve will increase. Although not very common, the slope may be negative if the market expects the interest rates to fall more than the premium on longer rates.
Aggregate supply Remember that labor demand provides us profit-maximizing quantity of L for a given real wage. If W/P is given (as it's in cross model), we can find profit-maxi
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Summary of the cross model The below list summarizes the cross model and associates it to classical model: Labor Market: Real wages W/P is exogenous in cross model
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What are the 4 scarce, factors of production and what is a description of each of them. What are the costs to these resources?
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