Fig 15-9, p. 461. Taylor Rule and Federal Funds Rate Taylor Rule: Federal Funds R=2.07 + 1.28* inflation – 1.95 * Unemp.gap. p. 460 Taylor Rule: interest rate = 1 + 1.5*inflation + 0.5 (Output gap) [previous edition p. 429]
Short Run and Long Run Effects of an Increase in M Figure 15-11, p. 464
The Long Run Determination of the Interest Rate. Figure 15-12 p. 466
The Long Relation between Money and Inflation. Figure 15-13 p. 467
Short Run Determination of the Interest Rate: Liquidity Preference and Loanable Funds Figure 15a-1, page 473 From the Appendix: shows that the two models give consistent answers. Pursuit of this topic is for upper division courses. Not covered in Ec 201.
Milton Friedman, 1912-2006 Consumption function, Floating Exchange Rates, Monetary History of the U.S., Monetary Policy Rule Link to Friedmans bio http://www.hoover.org/bios/friedmanbio Most prominent advocate of a return to free market/non- governmental policies. Influence concretized under President Reagan. Also: leading monetarist and a Nobel Prize winner.
Figure 18.4 page 533 Fiscal Policy with a Fixed Money Supply: (Crowding out analysis, repeated)
Equation of Exchange, a.k.a. Velocity equation M x V = P x Y where M is the quantity of money, V is velocity of circulation P is the price index Y is real GDP (Equation 18-1 page 533) Implication: If M increases and V and Y are constant, then P rises. Inflation is always and everywhere a monetary phenomenon.
Figure 18.5 page 534. The Velocity of Money (M1)
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