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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.
Define the Fisher equation Fisher equation is: Money supply (stock of money) x velocity of circulation of money = price level x total transactions in the economy or MV =
Trends of Trade Shares: India's share in total world exports in 1950 was 1.85 percent and the share in total world imports was 1.7 1 percent. The share of both exports and imp
using the marginal utility theory explain the consumption patten of consumers
There are many other macroeconomic indicators which one might expect to be affected following an oil price hike. Perhaps more obviously affected than GNP is inflation. DePratto et
How credit is created or the creation of credit
(Effects of Fiscal Policy) Recently some legislators have called for tax increases to reduce the federal budget deficit. Conservatives have countered that such tax increases could
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The structural deficit: A. falls as the economy expands and rises when it contracts. B. changes as actual income changes regardless of potential income. C. does not change when inc
Assume an industry with one upstream and one downstream monopoly. The upstream monopoly produces Q , which is sold solely to the downstream monopoly. The downstream monopoly faces
The following is the information from the national income accounts for a hypothetical country: GDP
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