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Inflation and Output

Inflation and Output

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Published by: helperforeu on Nov 21, 2009
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12/31/2012

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 Inflation and Output 
Jenny Xu, Department of Economics, SFU
chapter 15
PART 4
The Economy in the Short Run
 
Principles of Macroeconomics, 2nd Canadian EditionSlide 15-2Copyright © 2005 McGraw-Hill Ryerson Limited
Volcker’s Disinflation
In the late 1970s, inflation increased rapidly
By 1979 US inflation = 11.3%; Canada = 9.2%
Paul Volcker was appointed the Chairman of the USFederal Reserve in Sept. 1979
sharply increased interest rates
GDP & employment fell sharply in the U.S.
U.S. slowdown decreased demand for Canadianexports
Bank of Canada followed US lead in raising interestrates
Interest rates doubled – 1978 = 8.6%; 1981 = 17.8%
Sharpest recession since the 1930s followed
Unemployment rate in 1980 = 7.5%; in 1983 = 11.9%
 
Principles of Macroeconomics, 2nd Canadian EditionSlide 15-3Copyright © 2005 McGraw-Hill Ryerson Limited
Why? Extending the Basic Keynesian and
 AD-AS 
Models
 This chapter extends the basic Keynesian and
 AD- AS
models to allow for price inflation and thereactions of Central Banks
We use the aggregate demand-inflationadjustment diagram to analyze the recessions of the early 1980s & 1990s

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