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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 ...
The Organisation for Economic Co-operation and Development (OECD) defines a recession as a period of at least two years during which the cumulative output gap reaches at least 2% of GDP, and the output gap is at least 1% for at least one year. [23] Recession can be defined as decline of GDP per capita instead of decline of total GDP. [24]
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 ...
All the recessions in the United States since 1970 (up through 2017) have been preceded by an inverted yield curve (10-year vs. 3-month). Over the same time frame, every occurrence of an inverted yield curve has been followed by recession as declared by the NBER business cycle dating committee.
After a post-Korean War inflationary period, more funds were transferred to national security. In 1951, the Federal Reserve reasserted its independence from the U.S. Treasury and in 1952, the Federal Reserve changed monetary policy to be more restrictive because of fears of further inflation or of a bubble forming. [40] [63] [64] Recession of 1958
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.
Government spending or tax cuts do not have to make up for the entire output gap. There is a multiplier effect that affects the impact of government spending. For instance, when the government pays for a bridge, the project not only adds the value of the bridge to output, but also allows the bridge workers to increase their consumption and ...
The non-accelerating inflation rate of unemployment (NAIRU) [1] is a theoretical level of unemployment below which inflation would be expected to rise. [2] It was first introduced as the NIRU (non-inflationary rate of unemployment) by Franco Modigliani and Lucas Papademos in 1975, as an improvement over the "natural rate of unemployment" concept, [3] [4] [5] which was proposed earlier by ...