Search results
Results from the WOW.Com Content Network
The calculation for the output gap is (Y–Y*)/Y* where Y is actual output and Y* is potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the growth of aggregate demand is outpacing the growth of aggregate supply—possibly creating inflation; if the calculation yields a negative number it is called a recessionary gap—possibly ...
[39] [40] Since reductions in general price level are called deflation, a deflationary spiral occurs when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. [41] In science, this effect is also known as a positive feedback loop. Another economic example of this situation in economics is the bank run.
The difference between potential output and actual output is referred to as output gap or GDP gap; it may closely track lags in industrial capacity utilization. [ 4 ] Potential output has also been studied in relation Okun's law as to percentage changes in output associated with changes in the output gap and over time [ 5 ] and in decomposition ...
Mostly, the medieval inflation episodes were modest, and there was a tendency that inflationary periods were followed by deflationary periods. [ 26 ] From the second half of the 15th century to the first half of the 17th, Western Europe experienced a major inflationary cycle referred to as the " price revolution ", [ 40 ] [ 41 ] with prices on ...
The introduction of inflationary expectations into the equation implies that actual inflation can feed back into inflationary expectations and thus cause further inflation. The late economist James Tobin dubbed the last term "inflationary inertia", because in the current period, inflation exists which represents an inflationary impulse left ...
That is, the rule produces a relatively high real interest rate (a "tight" monetary policy) when inflation is above its target or when output is above its full-employment level, in order to reduce inflationary pressure. It recommends a relatively low real interest rate ("easy" monetary policy) in the opposite situation, to stimulate output.
Changes in inflation may also impact the formation of inflation expectations, creating a self-fulfilling inflationary or deflationary spiral. [ 5 ] The monetarist quantity theory of money holds that changes in the price level are directly caused by changes in the money supply . [ 16 ]
The idea of helicopter drops was revived as a serious policy proposal in the early 2000s by economists considering the lessons from Japan. Ben Bernanke famously delivered a speech on preventing deflation in November 2002 as a Federal Reserve Board governor, where he said that Keynes "once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency ...