Unit 15- Macroeconomics

An increase in the general price level

a constant price level from year to year

a decrease in the rate of inflation

a decrease in the general price level

Real interest rate= nominal interest rate-inflation rate

rising wages increase disposable income raising the demand for goods and causing prices to rise

• workers’ claim to real wages+ firms’ claims to real profit> total productivity

• Upwards pressure on wages and prices

• a +ve bargaining gap & inflation

• workers’ claim to real wages+ firms’ claims to real profit< total productivity

• Downward pressure on wages and prices

• -ve bargaining gap & deflation

Difference between the real wage required to incentivise effort; and the real wage that gives firms enough profits to stay in business

Determines the feasible trade-offs between inflation & unemployment (MRT)

shows policymakers’ preformed trade-offs between inflation & unemployment(MRS)

Unexpected change on the supply side of the economy

1. Choose desired level of AD to stabilise the economy

2. Estimate the real interest rate which matches the level of AD

3. Calculate the nominal policy rate that’ll produce the appropriate market interest rate

Number of units of home currency that can be exchanged for one unit of foeigin currency

central bank purchases of financial assets aimed at increasing investment by reducing yields

Monetary policy regime where the central bank uses policy instruments to keep the economy close to an inflation target

decreasing the nominal interest rate to stablise the impacting AD

Tax cuts and increased gov spending(government intervention)

This focuses on financial assets, such as gov bonds. As the interest rate changes(decreases), this will impact asset prices

An increase in the REPO rate causes other short term interest rates to rise, and thus if international interest rates remain the same, this will lead to the demand for South African bonds increasing→ increasing demand for rands

In AD/AS model, prices and wages are variable which allows us to study inflation

By the time that the bank is paid back, they have lost purchasing power due to inflation

Where government increasing spending to discourage private spending