Macroeconomics at Freie Universität Berlin

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A Dynamic Model of Economic Fluctuations

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AD-AS Model:
Describe in words how the Dynamic Aggregate Demand and Dynamic Aggregate Supply curves would look like if |o changes from 0.5 to 2.

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AD-AS Model (Fluctuations)
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A Demand Shock raises inflation and output. 

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In the following Phillips curve 

π=π[previos] - 0.5 (u-0.05)

- What would be the natural rate of unemployment?

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Are there practical difficulties that a central bank might face if p(t=0) varied over time?

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What is u^n?
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Sacrifice ratio

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The Solow Model with population growth

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In a small open economy with a fixed exchange rate, an effective policy to increase equilibrium output is to:

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Unemployment and the Labor Market

if the steady state rate of unemployment equals 0.125 and the fraction of unemployment workers who find jobs each month (the rate of job finding) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separation) must be:

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According to Mankiw’s textbook, all of the following are causes of structural unemployment, except

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Exemplary flashcards for Macroeconomics at the Freie Universität Berlin on StudySmarter:

Macroeconomics

A Dynamic Model of Economic Fluctuations
To derive the Dynamic Aggregate Demand curve, you have to combine the supply curve with the Fisher equation, the expectations equation and the Phillips curve 

Macroeconomics

AD-AS Model:
Describe in words how the Dynamic Aggregate Demand and Dynamic Aggregate Supply curves would look like if |o changes from 0.5 to 2.

Phi represents the slope of the dynamic aggregate supply curve.
  • It makes the response of the Central Bank much stronger 
  • (i falls quicker)
  • inflation would remain the same in t=0, but will fall quicker on t=1...t=final
  • r also response stronger
  • Shorter lived increasing inflation and stronger negative reaction after the increase in i

Macroeconomics

AD-AS Model (Fluctuations)
The real interest rate is always smaller than the nominal interest rate 

Macroeconomics

A Demand Shock raises inflation and output. 
  • Fight inflation?
    Raise the response of the nominal interest rate (theta_pi)

(if we raise i, then r increases which means that consume and investment decrease and savings increase, this decrease output that followed for the Phillips curve will decrease inflation)
All happens at the same time t=0.

Macroeconomics

In the following Phillips curve 

π=π[previos] - 0.5 (u-0.05)

- What would be the natural rate of unemployment?
5%

Macroeconomics

Are there practical difficulties that a central bank might face if p(t=0) varied over time?
It would make the setting of monetary policy more difficult. 

Macroeconomics

What is u^n?
Natural rate of unemployment:
Is the rate at which the inflation rate does not deviate from the expected inflation rate

Macroeconomics

Sacrifice ratio
_ p.p. Sacrifice in GDP to decrease inflation by _ p.p.

change in GDP/ change in inflation

Macroeconomics

The Solow Model with population growth
An increase in the rate of depreciation causes a decrease in break-even investment and increases the steady state level of capital per worker

Macroeconomics

In a small open economy with a fixed exchange rate, an effective policy to increase equilibrium output is to:
decrease government spending 

Macroeconomics

Unemployment and the Labor Market

if the steady state rate of unemployment equals 0.125 and the fraction of unemployment workers who find jobs each month (the rate of job finding) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separation) must be:

0.08

Macroeconomics

According to Mankiw’s textbook, all of the following are causes of structural unemployment, except
Minimum wage laws 

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