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Give a brief description of the transmission mechanism
1. When the central bank target rate increases, other interest rates in the economy will increase (and the money supply will decrease, but that is not important here).
2. With higher interest rates, it is more expensive to borrow and more advantageous to save. Therefore, consumption and investment will decrease (we say that the central bank "cools off" the economy).
3. As consumption and investment fall, GDP is reduced and unemployment will rise. This will cause inflation and the growth rate in wages to fall.
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Assuming an economy with no government and no foreign trade. Measure GDP for the following output scenario: There are three firms: firm A is a minning company, firm B is a stee
Q. Important points about the classic model? The most important points about the classic model are as following: Monetary and fiscal policy can't affect the GDP or unem
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Describe the Structural unemployment Individuals who are unemployed as their skills are no longer in demand where they live. This kind mainly results in longer spells and may r
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