Essentials of Macroeconomics by Peter Jochumzen

By Peter Jochumzen

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Money solves what is called the double coincidence of wants. A unit of account. In a monetary economy, all prices may be expressed in monetary units which everyone may relate to. Without money, prices must be expressed in units of other goods and comparing prices are more difficult. You may find that a grilled chicken costs 2 kilos of cod in one place and 4 kilos of strawberries in another. Finding the cheapest grilled chicken is not easy. Store of value. If you are a fisherman and have a temporary surplus of fish that you want to store for the future, storing the fish might not be a great idea.

Second, government securities are close substitutes for bank deposits, and when one of these rates changes, the other follows suit. 5. Overnight target rates and inflation One of the main targets of every central bank is a low and stable inflation. It’s main control variable is the overnight interest rate target, and the mechanism that allows the target to affect inflation is called the transmission mechanism. A brief description of the transmission mechanism looks like this: 1. When the central bank target rate increases, other interest rates in the economy will increase (and the money supply will decrease, but that is not important here).

This kind typically leads to longer spells and may require the unemployed to acquire training or to move. Cyclical unemployment. Unemployment due to a recession. Classical unemployment. Unemployment due to real wages being too high (for example through minimum wage laws). All unemployed individuals are assumed to belong to exactly one of these categories, so that if we sum the unemployment from each category we will get the total unemployment. g. we define the frictional unemployment rate as the frictional unemployment divided by the total labor force, and similarly for the other categories.

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