Week 5: Inflation and the Warrin

1. Inflation type: demand pull and cost push (which might result in stagflation)

2. For cost push inflation expectation, the GDP is expect to fall, thus we shall cut down production, and improve the resource efficiency.

    For demand pull inflation expectation, we are faced with intense wage pressure, thus we shall substitute the rising labor with capital (such as robot)

3. Core Inflation  & Inflation expectation

Inflation expectation==> Wage levels + Saving and Spending Patterns ==> Contribute to actual inflation.

During the self fulfilling process of adaptive expectations, the core inflation was maintained.

Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics

4. Phillips Curve : short term-Lower unemployment, higher inflation; Long term-it should be vertical due to the existence of natural unemployment.

5. Monetarist School of macroeconomics

Despite the name of monetarist, its advocates do not support the use of the kinds discretionary monetary policies advocated by Keynesians. Instead, the monetarist prefer a much more hands-off and free market approach to the economy that focuses most simply on the growth of the money supply itself.

6. Natural  Rate of Unemployment: Lowest rate of unemployment without causing inflation.

7.Natural rate of unemployment changes as structure of economy changes.

Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics

8. Fail to properly estimate the natural rate of unemployment: wind up with inflationary spiral. That's to say, the core inflation has been changed.

9. How to escape the inflation spiral ?

Week 5: Inflation and the Warring School of Macroeconomics

10. If the tax rate increases over a certain level, that increase will actually cause tax revenues to fall.

Week 5: Inflation and the Warring School of Macroeconomics

11. New Classic Economics

It's based on classic economics with rational expectations. If people form their expectations rationally, they can't be fooled by activist Keynesian policies. Thus, people will take actions based on their expectations of government policies which will offset the effect of Keynesian policies.

Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics

Summary

Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics Week 5: Inflation and the Warring School of Macroeconomics