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BLOCK 3, P = (100% + ε) x C, :explode: - Coggle Diagram
BLOCK 3
Inflation
Types
Constant
PL ^ at fixed rate
Increasing
PL ^ at increasing rate
Decreasing
PL ^ at decreasing rate
Zero
PL constant
Deflation
Prices falling
Causes
Demand shock
Change in output gap
Supply shock
(medium-run) No change to output gap
Models
Philips curve
Wage setting
Expectations
Price setting
mark up rule
Supply-side equilibrium
point where WS and PS intersect
Positive relationship between output and inflation
VPC
where inflation is constant
Inflation-targeting model
IS curve
Philips curve
Inflation aversion
Strong
Raising interest rates by larger amount for quicker results
Weak
Raising interest rates more gradually
MR curve
To reduce impact of expectations
Undershoots/Overshoots may occur
Demand/Supply shocks
Target above 0
Transmission mechanism
Process by which interest rates determine AD (and other economic targets)
CB changes BR
Market interest rates
AD
Expectations and confidence
P = (100% + ε) x C
:explode: