okun's law:output growth and changes in unemployment e Using letters rather than numbers let us write the relation between output growth and the change in the unemployment rate as t-1 b(gyt gy (113) Where g, is the normal growth rate of the economy(about 3% for the United States), and B tells us how growth in excess of normal growth translates into decrease in the unemployment rate 2003-7-28 6
2003-7-28 6 Okun’s law:output growth and changes in unemployment Using letters rather than numbers, let us write the relation between output growth and the change in the unemployment rate as: ut –ut-1= -β(gyt - gy ) (11.3) ⚫ Where gy is the normal growth rate of the economy (about 3% for the United States), and β tells us how growth in excess of normal growth translates into decrease in the unemployment rate
The Phillips curve: Unemployment and the change in inflation e We derived in chapter 10 the following relation (11.4) If expected inflation be well approximated by last year's inflation, so that we can replace s t by J 1 then it should hold J4—兀 (11.5) 2003-7-28 7
2003-7-28 7 The Phillips curve:Unemployment and the change in inflation We derived in chapter 10 the following relation: πt -πt e = -α(ut - un ) (11.4) If expected inflation be well approximated by last year’s inflation, so that we can replace πt e by πt-1 , then it should hold: πt -πt-1 = -α(ut - un ) (11.5)
The aggregate demand relation: Money Growth Inflation and Output Growth e In chapter 9, we have the following relation Y=Y(MP,G、T (92) e n order to focus on the relation between the real money stock and output, we shall ignore changes in factors other than real money here, and write the aggregate demand relation simply as Y+=r(M /Pt) (11.6) e You should keep in mind, however, that behind this elation hides the set of steps we saw in the IS-LM model To continue 2003-7-28 8
2003-7-28 8 The aggregate demand relation: Money Growth, Inflation, and Output Growth In chapter 9,we have the following relation: Y=Y(M/P, G, T) (9.2) ( + , + , - ) In order to focus on the relation between the real money stock and output, we shall ignore changes in factors other than real money here, and write the aggregate demand relation simply as: Yt =γ(Mt /Pt ) (11.6) You should keep in mind, however, that behind this relation hides the set of steps we saw in the IS-LM model: To continue