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A significant argument for the augmentation has to do with concept of money illusion. Money illusion means that you care about nominal rather than real amounts. Imagine that your salary increases by 20% over one year. Does this mean that you can increase your consumption? The answer is that it relies on the inflation. If inflation is 20%, you can consume as much as you did before. You should actually decrease you consumption if inflation exceeds 20%. We say that you have suffer from money illusion if you believe that you are better off if your salary increases by 20% whereas prices also increase by 20%. A higher nominal salary may create the ‘illusion' that you are richer.
If employees suffer from money illusion they will only care about nominal wage increases, expected inflation won't matter and there is no reason for traditional Phillips curve not to hold. If, though, they don't suffer from money illusion, ?wshould depend on both U and Πe and augmented Phillips curve is more realistic.
The rate of interest in the UK also showed very interesting results, to an impulse shock on oil price. The middle left graph from Fig 4.4 shows the results. Initially, in the short
Why do some countries have a high real per capita income? High standard of living within the industrialized nations consider to be largely because of the high productivity of
Illustrate an example of Consumer Price Index For instance, if we spend twice as much on apples as on pears, apples would have twice the weight in basket. The precise details o
In 2009, ABC Company made $2M of net profit and spent $100,000 on advertisement. In 2010, it made $2.5M of net profit and spent $150,000 of advertisement. Based on this information
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Price/Feeder Quantity Demanded Quantity Supplied $300 500 1800 270 600 1700 240 700 1600 210 800 1500 180 1000 1400 150 1100 1300 120 1200 1200 90 1300 1100 60 1400 1000 30 1500 90
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How commercial banks "create money" Commercial banks obviously cannot influence the amount of currency in the economy or the monetary base, since they are not allowed to print
provide data and analysis for the real GDP (as total and per capita) and its growth rate then draw a graph and identify the periods of the Malaysia’s business cycle 2007 -2011
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