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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 production of 200 units of consumer goods and 300 units of capital goods : a) indicates full employment b) may be a result of unemployment c) may be impossible for now d)
What are the contents in the market strikes back? a. Price controls • Price ceiling • Price floor b. Quantity controls quota c. Excise tax d. Inefficiency
Explain the notion of the hidden momentum of population growth. Why is this an important concept for projecting future population trends in different developing nations?
tax be cut as the main policy target
State the Monetary base and the supply of money - central bank It is not possible for the central bank to print and distribute money - that would increase their debt without i
Q. Explain the problem with IS-LM model? The starting point of AS-AD model is an assumption in IS-LM model (and in the cross model) that limits its usefulness. This is an assum
State the market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all interest rates. During the day, banks norm
Consider the following: An economy is found to have output, y = 20000 Also assume that the government runs a deficit where tax revenue T= 4000 and government expenditures G=5000
Consumer Equilibrium: According to our assumption for 'x' units consumption of the commodity, gross utility obtained by the consumer is U(x).But for this, the consumer must sp
Q. Show the equations of the AS-AD model? The equations of the AS-AD model To précis the AS-AD model, we can have a glance at its equations. IS-LM model was "solved" by s
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