Macro part 1a explications related to some concepts
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Catégorie :Category: nCreator TI-Nspire
Auteur Author: SPITZER2001
Type : Classeur 3.0.1
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Mis en ligne Uploaded: 20/02/2025 - 04:22:34
Uploadeur Uploader: SPITZER2001 (Profil)
Téléchargements Downloads: 8
Visibilité Visibility: Archive publique
Shortlink : https://tipla.net/a4512064
Type : Classeur 3.0.1
Page(s) : 1
Taille Size: 3.87 Ko KB
Mis en ligne Uploaded: 20/02/2025 - 04:22:34
Uploadeur Uploader: SPITZER2001 (Profil)
Téléchargements Downloads: 8
Visibilité Visibility: Archive publique
Shortlink : https://tipla.net/a4512064
Description
Fichier Nspire généré sur TI-Planet.org.
Compatible OS 3.0 et ultérieurs.
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The Volcker Disinflation Period (1980s Present) The "Volcker Disinflation" period refers to a pivotal shift in U.S. monetary policy initiated by Paul Volcker, Chairman of the Federal Reserve from 1979 to 1987. During the 1970s, the U.S. suffered from stagflationhigh inflation combined with stagnant economic growthcaused by oil shocks, loose monetary policy, and wage-price spirals. By 1979, inflation exceeded 13%, leading to Volckers appointment to restore price stability. Volcker implemented radical monetary tightening by raising interest rates to nearly 20%. His goal was to break inflation expectations and end the wage-price spiral by making borrowing expensive, reducing the money supply, and convincing businesses and workers that inflation would no longer be tolerated. This approach aimed to reset long-term inflation expectations. In the short term, this policy caused a severe recession: unemployment peaked at 10.8% in 1982, and economic growth slowed as borrowing and spending collapsed. Despite political backlash, Volcker maintained high interest rates until inflation fell to 3% by 1983. Long-term, Volckers actions changed inflation expectations permanently. By establishing that the Federal Reserve would consistently fight inflation, he ended the cycle of high wages and prices, leading to a disinflationary trend that lasted for 40 years. Central banks worldwide adopted inflation-targeting, ensuring low and stable inflation. Volckers legacy is a period of economic stability and growth, characterized by predictable monetary policy, low inflation volatility, and steady economic expansion. His strategy of prioritizing inflation control over short-term growth reshaped modern central banking, influencing economic policy for decades. Short-Term Equilibrium on the Phillips Curve This graph explains how inflation and unemployment are related in the short run and long run using the Phillips Curve. It shows the interaction between: The Long-Run Phillips Curve (LRPC) Vertical, showing no trade-off between inflation and unemployment in the long run. The Short-Run Phillips Curve (SRPC) Downward-sloping, showing a temporary trade-off between inflation and unemployment. 1. Long-Run Phillips Curve (LRPC): Vertical Line The LRPC is vertical at the natural rate of unemployment (u). It represents the long-term equilibrium where actual inflation equals expected inflation. In the long run, the natural rate of unemployment (u) does not depend on inflation because wages and prices adjust fully to expectations. Key Point: Any attempt to reduce unemployment below u will only lead to higher inflation in the long run. 2. Short-Run Phillips Curve (SRPC): Downward Slope The SRPC shows a negative short-term relationship between inflation (À) and unemployment (u): Higher inflation Lower unemployment Lower inflation Higher unemployment Why? In the short run, wages and prices are sticky, and unexpected inflation can stimulate demand, reducing unemployment. 3. Initial Long-Term Equilibrium (Left Graph) The economy starts at point A, where: Unemployment = Natural rate (u) Inflation = Expected inflation (À) Actual inflation = Expected inflation This point is at the intersection of the LRPC and SRPC. Wages, input prices, and output prices all match inflation expectations, keeping unemployment at its natural rate. 4. Short-Term Equilibrium with Higher Inflation (Right Graph) What Happens? Unexpected increase in inflation (from À to À). Actual inflation > Expected inflation Firms hire more due to higher demand. Unemployment falls below the natural rate (u < u) as firms expand production. Why Does Unemployment Decrease? Workers see higher wages (nominal increase) but dont immediately realize that inflation is eroding real wages. Firms see higher prices for their products and expand production, hiring more workers. This moves the economy up along the SRPC from point A to point B. 5. Adjustment Back to Long-Run Equilibrium Short-term gains are temporary. Once workers realize real wages havent increased (due to higher prices), they demand higher wages. This increases production costs for firms, leading to: Higher inflation expectations. SRPC shifts upward to a new curve (SRPC). The economy moves back to unemployment = u, but now with higher inflation (À). This process repeats until inflation expectations are fully adjusted, and the economy returns to the LRPC. 6. Key Takeaways Long-Run: The LRPC is vertical because inflation and unemployment are unrelated in the long term. Unemployment stays at the natural rate (u). Short-Run: The SRPC is downward-sloping because of a temporary trade-off between inflation and unemployment due to sticky wages and prices. Short-Term Shock: An unexpected increase in inflation reduces unemployment temporarily. Long-Term Adjustment: Inflation expectations adjust, and the economy returns to the natural rate of unemployment (u) but at a higher inflation level. Made with nCreator - tiplane
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Compatible OS 3.0 et ultérieurs.
<<
The Volcker Disinflation Period (1980s Present) The "Volcker Disinflation" period refers to a pivotal shift in U.S. monetary policy initiated by Paul Volcker, Chairman of the Federal Reserve from 1979 to 1987. During the 1970s, the U.S. suffered from stagflationhigh inflation combined with stagnant economic growthcaused by oil shocks, loose monetary policy, and wage-price spirals. By 1979, inflation exceeded 13%, leading to Volckers appointment to restore price stability. Volcker implemented radical monetary tightening by raising interest rates to nearly 20%. His goal was to break inflation expectations and end the wage-price spiral by making borrowing expensive, reducing the money supply, and convincing businesses and workers that inflation would no longer be tolerated. This approach aimed to reset long-term inflation expectations. In the short term, this policy caused a severe recession: unemployment peaked at 10.8% in 1982, and economic growth slowed as borrowing and spending collapsed. Despite political backlash, Volcker maintained high interest rates until inflation fell to 3% by 1983. Long-term, Volckers actions changed inflation expectations permanently. By establishing that the Federal Reserve would consistently fight inflation, he ended the cycle of high wages and prices, leading to a disinflationary trend that lasted for 40 years. Central banks worldwide adopted inflation-targeting, ensuring low and stable inflation. Volckers legacy is a period of economic stability and growth, characterized by predictable monetary policy, low inflation volatility, and steady economic expansion. His strategy of prioritizing inflation control over short-term growth reshaped modern central banking, influencing economic policy for decades. Short-Term Equilibrium on the Phillips Curve This graph explains how inflation and unemployment are related in the short run and long run using the Phillips Curve. It shows the interaction between: The Long-Run Phillips Curve (LRPC) Vertical, showing no trade-off between inflation and unemployment in the long run. The Short-Run Phillips Curve (SRPC) Downward-sloping, showing a temporary trade-off between inflation and unemployment. 1. Long-Run Phillips Curve (LRPC): Vertical Line The LRPC is vertical at the natural rate of unemployment (u). It represents the long-term equilibrium where actual inflation equals expected inflation. In the long run, the natural rate of unemployment (u) does not depend on inflation because wages and prices adjust fully to expectations. Key Point: Any attempt to reduce unemployment below u will only lead to higher inflation in the long run. 2. Short-Run Phillips Curve (SRPC): Downward Slope The SRPC shows a negative short-term relationship between inflation (À) and unemployment (u): Higher inflation Lower unemployment Lower inflation Higher unemployment Why? In the short run, wages and prices are sticky, and unexpected inflation can stimulate demand, reducing unemployment. 3. Initial Long-Term Equilibrium (Left Graph) The economy starts at point A, where: Unemployment = Natural rate (u) Inflation = Expected inflation (À) Actual inflation = Expected inflation This point is at the intersection of the LRPC and SRPC. Wages, input prices, and output prices all match inflation expectations, keeping unemployment at its natural rate. 4. Short-Term Equilibrium with Higher Inflation (Right Graph) What Happens? Unexpected increase in inflation (from À to À). Actual inflation > Expected inflation Firms hire more due to higher demand. Unemployment falls below the natural rate (u < u) as firms expand production. Why Does Unemployment Decrease? Workers see higher wages (nominal increase) but dont immediately realize that inflation is eroding real wages. Firms see higher prices for their products and expand production, hiring more workers. This moves the economy up along the SRPC from point A to point B. 5. Adjustment Back to Long-Run Equilibrium Short-term gains are temporary. Once workers realize real wages havent increased (due to higher prices), they demand higher wages. This increases production costs for firms, leading to: Higher inflation expectations. SRPC shifts upward to a new curve (SRPC). The economy moves back to unemployment = u, but now with higher inflation (À). This process repeats until inflation expectations are fully adjusted, and the economy returns to the LRPC. 6. Key Takeaways Long-Run: The LRPC is vertical because inflation and unemployment are unrelated in the long term. Unemployment stays at the natural rate (u). Short-Run: The SRPC is downward-sloping because of a temporary trade-off between inflation and unemployment due to sticky wages and prices. Short-Term Shock: An unexpected increase in inflation reduces unemployment temporarily. Long-Term Adjustment: Inflation expectations adjust, and the economy returns to the natural rate of unemployment (u) but at a higher inflation level. Made with nCreator - tiplane
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