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Monetary and Fiscal Strategies in the World Economy by Michael Carlberg_1

Tham khảo tài liệu 'monetary and fiscal strategies in the world economy by michael carlberg_1', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 22 Fiscal Policy Table 1.3 Fiscal Policy A Demand Shock Unemployment 0 Inflation 0 Shock in A 2 Shock in B - 2 Unemployment 2 Inflation - 2 Change in Govt Purchases 2 Unemployment 0 Inflation 0 Table 1.4 Fiscal Policy A Supply Shock Unemployment 0 Inflation 0 Shock in A 2 Shock in B 2 Unemployment 2 Inflation 2 Change in Govt Purchases 2 Unemployment 0 Inflation 4 Chapter 3 Monetary and Fiscal Interaction An increase in money supply lowers unemployment. On the other hand it raises inflation. Correspondingly an increase in government purchases lowers unemployment. On the other hand it raises inflation. The target of the central bank is zero inflation. By contrast the target of the government is zero unemployment. The model of unemployment and inflation can be represented by a system of two equations u A-aM-PG 1 n B aeM PeG 2 Of course this is a reduced form. Here u denotes the rate of unemployment n is the rate of inflation M is money supply G is government purchases a is the monetary policy multiplier with respect to unemployment as is the monetary policy multiplier with respect to inflation P is the fiscal policy multiplier with respect to unemployment Ps is the fiscal policy multiplier with respect to inflation A is some other factors bearing on the rate of unemployment and B is some other factors bearing on the rate of inflation. The endogenous variables are the rate of unemployment and the rate of inflation. According to equation 1 the rate of unemployment is a positive function of A a negative function of money supply and a negative function of government purchases. According to equation 2 the rate of inflation is a positive function of B a positive function of money supply and a positive function of government purchases. A unit increase in A raises the rate of unemployment by 1 percentage point. A unit increase in B raises the rate of inflation by 1 percentage point. A unit increase in money supply lowers the rate of unemployment by a percentage points. On .