The Peculiarities of Literacy Education Essay Example | Topics and Well Written Essays - 1000 words

The Peculiarities of Literacy Education - Essay Example With computer technology text messages and images can move around the screen, produce music and movements, can freeze and navigate images and therefore in this way readers not only adopt the visual image but transform it, in this way, therefore, young people are using computers to construct their own meanings and also adapting to new forms.3 However print text is also important in developing the children's burgeoning development of literacy, there are certain prescribed practices that accompany each type of text, there is a rule that is embedded in each type of text and that the most important thing is to isolate and understand the different practices and the tacit understanding of the children in different subject, hence we must not concentrate purely on the linguistic but also on the multimodal. Children are dealing with greater network of meaning and the literacy curriculum need to match that in order for them to be set for the future, there is a difference between the literacy's children are learning at home and at the literacy class, this differences must be learnt and explored because children feel the differences between the literacy classes and the plugin technology and therefore there is need to help them accept the different literacy experiences in their lives. The text children enjoy at home are electronic, therefore the choice of text in the literacy class need to reflect the multimodality seen in websites by the children in order to appeal their reading behaviour, this would include novels, biographies, columns and poems from best writers that enrich the lives of our students. Further, the texts that touch on the emotional and intellect of readers are likely to move them into a greater depth of understanding. The use of technology, therefore, need to be viewed as the way in which students gain more knowledge and become literate, there is need to incorporate technology and using texts that appeal the reading habits of students, there is also the need to match the differences between the literacy classes and the plug-in technology. Teachers need to redefine reading in a way that it will embrace the interest and the needs of students, Booth outlined twelve steps in which teachers need to revolutionize the way they encourage children to read and this include; redefining what reading means, including comics and magazines in reading programs, including stories in programs because a story is the heart of literacy, helping the students through building strong reading muscles, valuing the responses of students, viewing writing as literacy, recognising the different stage and ages of students, focusing on literacy in every subject, welcoming young people into literacy culture, exploring how words work, understanding that technology is part of literacy and finally turning printed texts into active learning.     

Summary Paper Essay Example for Free

Summary Paper Essay In a May 22, 2011 article Why are so many students still failing online? the author, Rob Jenkins, argues the difference between online and on-campus classes. There is a problem with students failing online classes, but I believe that hybrid classes should be the primary choice. Jenkins mentioned that online classes are a better choice, but not with all classes. Jenkins asks, Can we agree that none of us would want to be operated on by surgeons who received all of their medical training online?† Online classes have their limits, but also have more conveniences. For example, Jenkins states that For students who arent able to attend college in the traditional way, good enough, can be a godsend. They are less costly and the enrollment rate is higher than on-campus courses. Online courses seem to be the future according to Jenkins. On the other hand, I disagree because the problem of students failing online classes exists because of the success rates. Online classes have a lower rate because classes such as speech should be taken in a traditional classroom instead of online. Some professors tried to have the students do their speeches on their own time but video tape them and send them to the professor to watch and evaluate. While this idea seems to work, I still believe that online courses such as this one are better taken in the classroom than online. Jenkins argues in a department meeting that faculty members should use the same principal as entry level on-campus classes and have students take an entrance exam to see if they score high enough to be able to take them successfully. The administrators told Jenkins that it more than likely wouldnt happen. Jenkins is in a working progress of getting the online class success rate up higher and making it a majority of the community college life. However, while Jenkins plan may succeed, I still believe that it is the wrong choice. Every college course is beneficial in some way or another, and almost all of them bring up questions throughout the semester that would be better answered in a classroom setting. The students would get more out of asking in class than through email. Again, in my opinion, I think campus classes should be the majority of the college life.

Export Diversification and Economic Growth

Export Diversification and Economic Growth One of the earliest ideas in the theory of economic development is that the degree of specialization or diversification of a countrys production and trade structure is important for its economic development (Wim Naudà © and Riaan Rossouw, 2008). But, the question whether developing countries should diversify their export production to achieve economic growth or rather specialise in order to achieve comparative advantage has been a debatable issue. Some researchers find that export diversification is better for economic growth in developing countries as their dependence on primary commodity production and exports leaves them vulnerable to commodity shocks, price fluctuations and declining terms of trade, especially since the income elasticity of the demand for primary commodities is low (Prebisch, 1950; Singer, 1950 and Rosenstein-Rodan, 1943). While others advocate for specialisation, for example, from Adam Smiths recognition of the importance of the division of labour and specializ ation for economic growth and development, to the standard Heckscher-Ohlin Samuelson (HOS) model of international trade, the position in neoclassical economics has been that countries should specialize in producing and exporting according to their comparative advantage (Wim Naudà © and Riaan Rossouw, 2008). Thus, many theories are based on; Should developing countries focus on diversifying their export basket or should they rather specialise their exports according to their existing comparative advantage? 2.1. Definitions Export diversification, by definition is the changing of a countrys export structure. This can be attained by changing the existing basket of commodities or by embellishing them through innovation and technology. Dennis and Shepherd (2007) define export diversification as widening the range of products that a country exports. As a matter of fact, export diversification can take two forms, namely, horizontal and vertical. Export diversification has different dimensions and can be analysed at different levels (Ali et al., 1991). Herzer and Nowak-Lehnmann (2006) explain that export diversification can occur either horizontally or vertically. Horizontal diversification causes changes in the primary export mix in order to reduce the effect of the fluctuation of global commodity prices. It also implies that the number of export sectors has increased. This reduces the dependency on a few sectors to lead export-oriented growth (Marianne Matthee and Wim Naudà © (May 2008). It brings forth stabilisation in export earnings (Al-Marhubi, 2000). If growth is to be achieved though horizontal export diversification, a country can either enlarge the share of products with increasing growth rates in export earnings, or it can add new products based on the growth rates of world prices (Ali et al., 1991). On the other hand, vertical diversification involves contriving further uses for existing and new innovative commodities by means of value-added ventures such as processing and marketing (Poverty and Development Division, United Nation, June 2004). Vertical diversification occurs when the export mix of a country shifts from primary products to manufactured products. The production of primary exports does not result in as many spill-overs as the production of manufactured exports (Marianne Matthee and Wim Naudà ©, May 2008). In the latter, externalities on, for example, knowledge and new technologies are created. These externalities benefit other economic activities (possibly creating horizontal diversification) and improve the ability of all industries to compete internationally (Chuang, 1998; Al-Marhubi, 2000; Herzer and Nowak-Lehnmann, 2006). Vertical export diversification also contributes to stabilisation in export earnings, as the prices of manufactured exports do not fluctuate as much as those of primary exports (Ali et al., 1991). If growth is to be achieved though vertical export diversification, a country can either introduce, expand value-added activities, or it can choose new products based on their value-added potential (Ali et al., 1991). Hausmann et al. (2005) conclude that the composition of a countrys exports matter, as countries that produce higher productivity goods experience greater export performance and are subsequently able to benefit more from the gains of globalisation. Both horizontal and vertical diversification can be favourable for a countrys economic growth; however their performance would vary in terms of technological, managerial and marketing skills. Vertical diversification policy, compared to horizontal diversification policy, requires more advanced technology, skills and initial capital investment than horizontal diversification policies do. In result of that, vertical diversification may produce greater dynamic externalities than that of horizontal diversification. 2.2 Theoretical Review There are many theoretical reasons, put forward by researchers, which says that export diversification leads to higher per capita income growth. Because of fluctuations in export, many developing countries opt for export diversification. As mentioned is made above, this instability arises as commodity products are often subject to very volatile market prices so that countries that are dependent on these commodities may suffer from export instability (Heiko Hesse, 2008). As a result of the stated instability, risk-averse firms might not invest in the country which can create macroeconomic uncertainty and in turn can be disadvantageous for long run economic growth. To prevent this instability many countries have liberalised trade. Michaely (1958) studied export and import concentration using GINI co-efficient on the dataset for 44 countries and 150 Standard International Trade Classification commodities and notes that countries with more diversified export structure are more developed in terms of income per capita, and more industrialized in terms of primary commodity share in total export. Export diversification could therefore help to stabilize export earnings in the longer run (Ghosh and Ostry, 1994); Bleaney and Greenaway, (2001)). According to structural models of economic development, countries should diversify from primary exports into manufactured exports in order to achieve sustainable growth (Chenery, 1979 and Syrquin, 1989). However, the concept of export diversification seems to contradict trade theory, especially Ricardos theory of comparative advantage where a country should specialise (Salvatore, 1998). Ricardo laid emphasis on the role of specialization in international trade and increases total productivity. According to him, export is said promote economic growth by specialising in sectors in which a country has a comparative advantage. In the same way, Helpman and Krugman (1985) pointed out that greater economies of scale due to increased exports can lead to an increase in the productivity level. In spite of the relationship identified between trade and productivity, the impact of specialization on the long run growth remained uncertain to many scholars. Sachs and Warner (1997), for example, identified a negative impact of a comparative advantage in raw materials on economic growth. More recently diversification and specialization has been studied as the part endogenous outcome of a countrys stage of development (e.g. Acemoglu and Zilibotti, 1997; Imbs and Wacziarg, 2003). This theory is based on countries production and therefore has an effect on their export, as there is a relationship between production and export. Ramacharan (2006) finds that a one standard deviation increase in diversification is associated with about a 0.81 standard deviation increase in the level of credit to the private sector. Thus, diversifying the sectoral composition of the economy, will benefit financial development, which in turn, as shown by Chang (1991) may allow countries to engage in more specialization of exports, given that developed financial markets may provide insurance against risk. This analysis may lead one to conclude that countries export structure may go through phases, from less diversified to more diversified, followed by a phase of less diversification and more sp ecialization, as the financial sector development deepens (Saint-Paul, 1992). Diversifying the production structure of the domestic economy may therefore be a requirement for export diversification and later export specialization. Another theory has been put forward by Marianne Matthee and Wim Naudà © which states that, this trend in trade has led to spatial inequality. This is so because, with trade liberalisation, small local businesses suffer which can result in a decrease in Gross Domestic Product (GDP) and eventually economic growth. Marianne Matthee and Wim Naudà © (May 2008) mentioned that in a more open economy with firms being able to export more, local firms become less reliant on the local market with a subsequent reduction in the forces of agglomeration. Furthermore, not all developing countries will gain with high export as their location can be an important determinant for their export propensity. But, export diversification contributes to growth in a country (Herzer and Nowak-Lehnmann, 2006) and many studies have proven so on a country level. Related to export diversification, there could be knowledge spill-overs from new techniques of production, new management, or marketing practices, potentially benefiting other industries (Amin Gutierrez de Pineres and Ferrantino, 2000). Producing a growing basket of export commodities can be seen to have an active effect of export diversification on higher per capita income growth. Agosin (2007) develops a model of export diversification and growth where countries with low technological frontier widen their comparative advantage by imitating and adapting existing products. Furthermore, models in the product cycle literature (Vernon, 1966; Krugman, 1979; Grossman and Helpman, 1991) obtain diversity of export products by the North innovating and the South predominantly imitating and exporting the products from cheap labour countries.

Training Required To Be A Soccer Player

Training Required To Be A Soccer Player Soccer players need a combination of fitness attributes such as strength, endurance, power, co-ordination, speed and agility, in order to perform and play at a high intensity considering games last 90 minutes plus, therefore as stated by (Stolen et al, 2005) success depends on players being mentally, physically, technically and tactically prepared for competition. Within this assignment I will outline the preparation requirements for a soccer player under the following headings: Strength Training, Endurance Training, Speed Agility and Quickness Training. While doing so I will give general information on each of the three topics, and then move on to give information about the specific requirements for the soccer player. Strength Training: According to Darden, (1992) Well developed, strong, lean body parts will help any athlete or non-athlete perform better. Pg: 45 Stated by Croisier et al., (2005) Strength training is very important for any competing athlete, as it corrects muscle imbalances and reduces the risk of injury, for safety it is important for everyone taking part in strength training to use a spotter and apply good lifting technique to avoid injury. Strength training is also important for non-athletes as it enhances quality of life for people as they can go about everyday tasks such as getting out of bed, getting dressed, carrying shopping bags, walking up stairs etc. (Evans, 1999). Strength training can be divided into three phases such as absolute maximal strength, explosive power, and lastly muscular endurance. McDonagh and Davies, (1984) stated that maximal strength is the biggest force that can be exerted in a single maximum voluntary contraction. According to Stone, (1981) maximal strength is proven to increase jumping ability and motor performance. The athletes main goal is to build as much maximal strength as possible so that they can turn this strength into muscular endurance and explosive power. Explosive power can be developed using a combination of heavy, moderate and light weights (Fleck and Kraemer, 2004). Plyometric training has been shown to be one of the most effective methods for improving and enhancing explosive power (Fleck and Kraemer, 2004) which occurs when the active muscle switches from rapid eccentric muscle action to rapid concentric muscle action (Luebbers et al, 2003). The purpose of plyometrics is to improve the athletes capacity to apply more force more rapidly. Therefore, the greater the athletes ability to generate maximal force or strength to begin with, the more this maximal force and strength can be converted into sport-specific power. According to Dick, (2007) a complex form of training develops muscular endurance, circuit type training which concentrates on soccer specific exercises works well. He states that including a variety of different exercises, movements, as well as equipment combinations and training methods in the circuits will help keep athletes motivated. More sports specific exercises may include using high box step ups rather than lying leg press for the leg muscles, water resistance for training leg muscles, swiss ball for working on core stability and balance. Dynamic movements such as headers, tackling, sprinting and kicks all involve a high level of muscle strength, endurance and power. Players need strength to defend against components who try to push them off the ball while in the air or on the ground, (Cabri et al, (1988). Therefore it is important for athletes to improve their soccer specific strength in the preparation period as the athlete needs to be capable of using muscle strength and power effectively and also consistently within a game and during the season Bangsbo, (1994). As stated by Bompa, (2009) the soccer players performance during the season depends on their adaption and psychological adjustment to training and competitions, and their development of skills and abilities. The duration of each of the stages below depends firstly on the competition schedule and also on the time the athlete needs to increase their level of training and athletic shape, therefore an adequate planning schedule of training and fixtures needs to be put in place. According to Davis et al, (1992) the strength training program for the soccer player is dependent on their positions which can be broken down into four stages goalkeeper, defender, midfield, and attacker given that the athletes need to build up strength and power in relation to their position on the field and what is expected of them. Sport specific training provides a stronger relationship to the soccer player then general strength training because of the way it works the muscles, the speed of the movement and the actual sporting performance Dick, (2007). The following specific requirements for the soccer player were retrieved from Bompa and Carrera, (2005); Dick, (2007); Hoff and Helgerud, (2004); Shepard, (2006) Off season In the off-season the soccer player is in the preparation stage their training to train. After their recovery and adequate rest, soccer players work on building up muscles and a solid functional strength base, they achieve this by preparing the body for more intense work in later phases, strengthening the stabiliser muscles and working on improving imbalances in the body. As soccer players in general have over developed quads from repetitive kicking action therefore they need to work on balancing flexors and extensors also, in order to reduce the risk of injury later on in the season, Off season- Early pre season In this phase the soccer player needs to build maximal strength, since power is the overall outcome, the athlete needs to develop strength first and then convert it into soccer specific power. Late pre season In the late pre season the athlete needs to keep working on muscle power and strength endurance, converting strength gains into soccer specific power and muscle endurance. For this stage plyometrics and/or circuit training should replace weight room sessions. In season-maintance During this phase the soccer player needs to maintain the gains they have made so far in the season without over reaching and overtraining. The athlete should be balanced and muscles should not be under stress, the athletes upper and lower body should be working in cohesion minimizing shock and stress and therefore reducing the risk of injury. Bobbert and Van Soest, (1994) stated that muscle training exercises need to be affiliated with sport specific motions so that the athlete can regulate their control and therefore take advantage of their enhanced muscle properties. Endurance Training: According to Tinley, (1994) endurance training involves athletes being able to keep going for long periods of time, and it also requires a high level of stamina, to develop and maintain aerobic fitness and build endurance. Non-athletes might partake in endurance training in order to improve their quality of life, so they can walk up the stairs without wheezing or run a 10k run in six months time. Stone and Kilding, (2009) stated that soccer players need a high level of aerobic fitness in order to produce and maintain power output during repeated high intensity efforts and in order to recover quickly. Bangsbo et al, (1994); Franks et al, (1999) have observed training intensities deemed suitable for endurance training, during small sided soccer games and on a dribbling track. The size of pitch, intensity, duration and number of players were also seen to have an influence on reaching target heart rate zone. As stated by Bangsbo, (1994) approximately 90% of energy during a soccer game is from aerobic sources, therefore heart rate is a valid indicator of exercise intensity for most of the training. Anaerobic endurance is important for soccer players especially strikers, they require short bursts of anaerobic power when sprinting for a ball, Shepard, (2006). The soccer player requires the following endurance training for the duration of the season Off season During the off season the athlete needs adequate rest and recovery in order to start preparation for the season as soon as possible, Bompa and Carrera, (2005). Off season- Early pre season During this stage the team takes part in small sided conditioning games, dribbling tracks, interval training or circuit training that include specific movement and skill development activities. The fitness program in this stage concentrates on aerobic and short term anaerobic endurance, Lawson, (2001); Meir et al, (2001). Late pre season The team have increased emphasis on training with the ball in order to transfer the skills and movements into their competitive environment. They are still working on drills and training programs from the last stage, although intensity has increased and sports specific adoptions have been made. The athletes develop decision making and problem solving skills under pressure and fatigue, Kelly, (2009); Little, (2006). In season-maintance During the in season the team have to maintain the aerobic fitness and sport specific skills they have acquired over the pre season training stages and apply them to their performances, Stone and Kilding, (2009). Speed Agility and Quickness Training: Speed, agility and quickness (SAQ) training is important for athletes especially those who play a sport that involves a high level of dynamic movement such as, changing direction, headers, tackling, sprinting and kicks. SAQ enables athletes to develop faster reactions so that they can accelerate more quickly and effectively, move successfully in multiple directions, change direction and decelerate quickly in order improve performance on the pitch, Pearson, (2000). Stated by Brown et al., (2000) speed, agility and quickness training drills are used to develop co-ordination, balance, and optimise neuromuscular patterning and condition. Shepherd, (2006) speed can be trained and learned through repetition and overload, speed is the athletes ability to move in the right direction through the required range of motion as fast as possible. Agility is rapid changes in direction without the loss of speed, balance, or body control, it can be improved by the use of agility ladders. Quickness this is the reaction time and the ability to move fast without hesitation. The following specific requirements for the soccer player for SAQ training were retrieved from Bompa and Carrera, (2005); Polman et al, (2003). Off season The athletes need adequate rest and recovery, in order to start preparation for season as soon as possible, Bompa and Carrera, (2005). Off season- Early pre season Teams start to train with agility ladders to improve foot speed and foot to ground contact, sprints, hops in different directions, push-ups, dribbling around cones, spot running, turn and sprint drills, working at moderate to high intensity, and adequate rest between repetitions. Late pre season Teams continue speed, agility and quickness training like last season but incorporate adaptions resisted sprints, one on one games, more sport specific movements and increase intensity of training. In season-maintance To maintain speed, agility and quickness, and their reactions that the SAQ training has taught them over the pre season training and apply the above to their performances on the pitch. Conclusion: In conclusion to this assignment on the preparation requirements for a soccer player, the following headings have been explained giving general information, Strength Training, Endurance Training, Speed Agility and Quickness Training, then moving on to give specific information about the requirements for the soccer player. According to Kraemer et al, (2004) an adequate mixture of soccer specific practices and strength and conditioning programmes which require the development of aerobic capacity, strength, power, speed, and speed endurance, can sustain and develop a soccer players physical performance therefore allowing the athlete to perform at their best throughout the whole season.

Sub-plots in Hamlet Essay -- Essays on Shakespeare Hamlet

Sub-plots in Hamlet    There are many things that critics say make Hamlet a "Great Work," one of which is the way that Shakespeare masterfully incorporates so many sub-plots into the story, and ties them all into the main plot of Hamlet’s revenge of his father’s murder. By the end of Act I, not only is the main plot identified, but many other sub-plots are introduced. Among the sub-plots are trust in the Ghost of King Hamlet, Fortinbras, and the relationship between Hamlet and Ophelia. These three sub-plots are crucial to making Hamlet the master piece that it is. In the times that Shakespeare lived ghosts were a readily accepted idea, but one had to be wary of them because it was difficult to decipher a good ghost from a bad one. Horatio, Hamlet’s best friend, first brings that question into our mind when the Ghost is asking Hamlet to follow it. Horatio warned: What if it tempt you toward the flood, my lord, Or to the dreadful summit of the cliff That beetles o’er his base into the sea, And there assume some other horrible form Which might deprive your sovereignty of reason And draw you into madness? Think of it. (68) Hamlet disregarded Horatio’s warnings, followed the Ghost of his father, and heard of the murder that took place. This is where he learned of his quest to revenge his father, the main plot of the play. But Hamlet still wasn’t sure of the validity of the Ghost, so he decided to put the Ghost’s accusations to a test. "There is a play tonight before the King: One scene of it comes near the circumstance Which I have told thee of my father’s death. . . Observe my uncle. If his occulted guilt Does not itself unkennel in one speech, It is a damned ghost that we have seen" (156). By having a group of play... ...For many authors, to take so much as a word out of their work it is destroying it. For plays though, it is meant for words to be changed and added, but not for whole plots and sub-plots. To take out such a big section of a play is disastrous because it leaves the reader and audience with unanswered questions. The sub-plots add to the plot complexity, let the audiences become more involved, and let them all leave feeling that they had seen some characteristic of themselves in the play. This is what makes a play great, and makes the audience want to see it over and over again. Even a seemingly needless character can relate to someone. The more sub-plots (ones that are well worked into the play) the more people that can relate, the better the play. Works Cited Shakespeare, William. Hamlet. Durband, Alan, ed. and modern translation. Hutchinson & Co.: London. 1986.

Coeducation at Haverford :: School Papers

Haverford College did not begin as the institution that it is today. A group of concerned Quakers constructed the secondary school on the premise that it would provide a fine education for Quaker young men. On its founding day in 1833, the Haverford School's notion of a "liberal and guarded education for Quaker boys" became a reality. Jumping forward in time to 1870, a decisive change was on the horizon: the faculty and students had voted to go coed. However, the Board of Managers did not concede and Haverford remained single sex for over a century after the students and faculty had spoken. It wasn't until 1980 that a freshmen class comprised of both men and women entered Haverford. Yet it is the decade prior to 1980 that is the topic of this paper. The series of about 10 years before a Haverford female student would unpack her belongings in her room to settle down for four years of an intense and demanding education, both in and out of the classroom, was a time of much reevaluation and consideration on the part of the students, administration, and faculty. The 70's were vibrant and passionate years in the context of the debate over coeducation as students, faculty, and administrators voiced their opinions often in Haverford and Bryn Mawr's weekly newspaper, The News, forums, interviews, formal discussions, reports, and Collections (school wide meetings) on both Bryn Mawr's and Haverford's campus. The essence of the coeducational debate fell between two camps. One side argued that continued cooperation with Bryn Mawr was the best choice for both schools. The other said that it was time for Haverford to prevent its identity from merging with Bryn Mawr's and to step out on its own as a coed institution. The battle lines were drawn and the debate continued with zeal for most of the decade. Economics played an important role in the debate. Haverford's President John Coleman saw that Haverford's financial state was in jeopardy if it did not expand in size. He also saw that by prohibiting 50% of the population in an expansion would decrease the caliber of students at Haverford. Bryn Mawr's president Wofford felt passionately that the fate of Bryn Mawr rested on the decision of Haverford. His concerns were exacerbated by the seemingly coercive patterns Haverford's Board of Managers set by claiming to let the issue of coeducation rest but then by addressing the possibility again each year.

Ecn 204 Final Exam Notes

Macro Final Exam Chapter 10: The Money Systems What assets are considered â€Å"Money†? What are the functions of money and the types of money? * W/o money, trade would require barter > Exchanging one good/service for another * unlikely occurrence that two people e/ have a good that other wants * 3 functions * Medium of exchange: an item buyers give to sellers when they want to purchase g/s * Unit of account: the yardstick ppl use to post prices & record debts * Store of value: an item ppl can use to transfer purchasing power from the present to the future * 2 kinds Commodity money: commodity with intrinsic value, i. e. gold coins * Fiat money: money w/o intrinsic value, used as money b/c of gov’t decree, i. e. dollar bills * Money in Can’n economy * Money supply (Money stock): the quantity of money available in the economy * Two assets should be considers: * Currency: the paper bills & coins in the hands of the general public * Demand deposits: balances in bank accounts that despositors can access on demand by writing a cheque/using debit card * Money Supply = currency + depositsWhat is the bank of Canada and its role? How do Banks create money? * Central Bank: an institution designed to regulate the money supply in the economy * Bank of Canada: the central bank of Canada * Established in 1935, nationalized in 1938, owned by Can’n gov’t * Managed by board of directors appointed by minister of Finance, composed of: governor, the senior deputy governor (7 yr terms), 12 directors (3 yr terms) * Four primary functions: * Issue currency, act as banker to commercial banks & Can’n gov’t, control money supply * Commercial Banks and Money Supply Although Bank of Canada alone is responsible for Canadian monetary policy, the central bank can control the supply of money only through its influence on the entire banking system * Commercial banks include credit unions, caisses populaires, and trust companies * Commercial banks can influence the quantity of demand deposits in economy and money supply * Reserves: cash that commercial banks hold * Fractional banking system > Keeps fraction of deposits as reserves, rest is loaned * Banks may hold more than this minimum amt if they choose * The reserve ratio, R Fraction of deposits that banks hold as reserves * Total reserves as % of total deposits * Bank T-account * T-account – simplified accounting statement that shows bank’s Assets & liabilities * Banks liabilities: deposits(what we put in the bank), Assets: Loans and reserves(What bank keeps) * R= Reserves/Deposits * Banks & money supply * $100 of currency is in circulation, determining impact on money supply: Calculate in 3 different cases * No banking system Public holds the $100 as currency; Money supply= $100 * 100% reserves banking system: banks hold 100% of deposits as reserves make no loans * MS = Currency (loans) + deposits = 0 +100 = 100 * Bank does not affect size of money supply * Fractional reserve banking system * R=10%: Reserves: 10, Loans: 90, Deposits: 100 * MS= $190 * When banks make loans > create money * Borrower gets: 90 in currency(asset), 90 in new debt/loan (liability) * Money Multiplier: The amt of money the banking system generates with each dollar of reserves * Money multiplier = 1/R R =10, 1/R = 10, 100 x 10 = 1000 * The Bank of Canada’s tools of Monetary Control * 1. Open-market operations * When it buys gov’t bonds from/ sells to the public * Foreign exchange market operations: when it buy/sells foreign currencies * MS increase when bank of Canada buys foreign currency with Canadian Currency; and decrease when BoC sells foreign currency * 2. Changing the overnight rate * Central banks act as bankers to commercial banks Bank rate : interest rate charged by bank of Canada on loans to the commercial banks * Since 1998 Bank of Canada as allowed commercial banks to borrow freely at the bank rate, paid commercial banks the bank rate , minus half percent, on their deposits at bank of Canada * Commercial banks never need to pay more than bank rate for short term loans, b/c they can always borrow from the Bank of Canada instead * Conversely, commercial banks never need to accept less than the bank rate, minus half a percent, when they make short-term loans, because they can always lend to the bank of Canada instead * Overnight rate: the interest rate on very short-term loans between commercial banks * Bank of Canada can alter the money supply by changing the bank rate, which in turn causes an equal change in overnight rate * A higher bank rate discourages commercial banks from borrowing from the Bank of Canada * A higher overnight rate discourages commercial banks from borrowing from other commercial banks * An increase in the overnight rate reduces the quantity of reserves in the banking system, which in turn reduces the money supply * Bank of Canada’s control of MS is not precise * Bank of Canada must wre stle w/ 2 problems that come from fractional-reserve banking * Does not control amt of money that: * Household choose to hold as deposits in banks * Commercial bankers choose to lend Chapter 11: Money Growth and Inflation How does the money supply affect the inflation & nominal interest rates? * Quantity theory of money: Price rises when gov’t prints too much money * Most economists believe the quantity theory is a good explanation of the long run behavior of inflation * Asserts that quantity of money determines value * 2 approaches: * Supply demand diagram MS determined by bank of Canada, banking system, consuers * In model, assume that BoC precisely controls MS & sets it at some fixed amt * MD (money demand) how much wealth ppl want to hold in liquid form * Depends on P: an increase in P reduces the value of money, so more money is required to buy goods & services * Thus: Quantity of money demanded is –vely related to the value of money +vely related to P, other thin gs equal (real income, interest rates, availability of ATMs) * * Results from Graph: Increasing MS causes P to rise * How does this work? Short version: * AT the initial P, an increase in MS causes excess supply of money * People get rid of their excess money by spending it on goods & services/ by loaning it to others who spent it * Result: increased demand of goods But supply of goods does not increase, so prices must rise * Other things happen in the short run, which we will study in later chapters) * Equation * Nominal Variables: are measured in monetary units * i. e. Nominal GDP, nominal interest rates (rate of return measured in $) nominal wage($ per/hour worked) * Real Variables: are measured in physical units * i. e. real GDP real interest rate (measured in output) real wage (measured in output) * Real vs. Nominal * Prices are normally measured in terms of money * Price of a compact disc: $15/cd * Price of a pepperoni pizza: $10/pizza A relative price: price of one good relat ive (divided by) another: * Relative price of CDs in terms of pizza: * Price of CD/Price of pizza = 15/10 = 1. 5 pizzas per cd * Relative prices are measured in physical units so they are real variables * Real vs. Nominal Wage * An important relative price is the real wage * W= nominal wage= price of labour $15/hr * P = price level = price of g&s $5/unit of output * Real wage is price of labour relative to price of output * W/P = 15/5 = 3 units output per hour * Classical theory of inflation: * Increase in overall level of prices * Over past 60 yrs, prices risen on avg of 4%/yr Deflation: people will wait for prices to drop on big ticketed items, dropped in the 20th century * In 1970s prices rose by 7%/yr * During 1990s, price rose at 2%/yr * Hyperinflation: extraordinary high rate * Quantity theory of money: explain long-run determinants of price lvl and inflation rate * Inflation is an economy-wide phenomenon that concerns the value of the economy’s medium of exchange * Whe n the overall price level rises, value of money falls * Inverse relationship b/w price & value of money * Value of money: * P = Price lvl (CPI/ GDP deflator) * P = price of basket of goods measured in money * 1/P is value of $1, measured in goods * Example: basket contains one candy bar, P = $2, Value of $1 is ? candy bar * The Classical Dichotomy Classical dichotomy: theoretical separation of nominal & real variables * Hume & the classical economists suggested that monetary developments affect nominal variables but not real variables * If the central bank doubles the MS, Hume & classical thinkers contend * All nom variables (including prices) will double * All real variables (Including relative prices) will remain unchanged * The neutrality of Money * Monetary neutrality: the proposition that changes in the MS do not affect real variables * Doubling money supply causes all nominal prices to double, what happens to relative prices? * Initially, relative price of cd in terms of pizza is * Price of cd/price of pizza = 15/10 = 1. pizzas per cd * After nominal prices double * 30/20 = 1. 5 pizza per cd * Relative price is unchanged * Monetary neutrality: proposition that changes in the MS do not affect real variables * Similarly, the real wage W/P remains unchanged, so†¦ * Quantity of labour supplied/demanded, total employment does not change * The same applies to employment of capital & other resources * Since employment of all resources in unchanged, total output is also unchanged by the MS * Most economists believe the classical dichotomy & neutrality of money describe the economy in the long run Does the money supply affect real variables like real GDP or the real interest rate? The velocity of Money: the rate at which money changes hands * Notation: * PxY = nominal GDP = price level x real GDP * M = money supply * V = velocity * Velocity formula: V = PXY/M * Pizza, Y = real GDP = 3000 pizzas, P= price of pizza = $10, P*Y = $30,0000, M = $10,000 * V=30,000 /10,000= 3, avg dollar was used in 3 transactions * Quantity Equation * M*V = P*Y * V = stable * So, a change in M causes nominal GDP (P*Y) to change by the same % * A change in M does not affect Y: money is neutral, Y is determined by tech & resources * So, P changes by the same % as P*Y and M * Rapid money supply growth causes rapid inflation How is inflation like a tax? Hyperinflation is generally defined as inflation exceeding 50%/month * Excessive growth in the MS always causes hyperinflation * Inflation tax: * When tax revenue is inadequate and ability to borrow is ltd, gov’t may print money to pay for its spending * Almost all hyperinflations start this way * The revenue from printing money is the inflation tax: printing money causes inflation, which is like a tax on everyone who holds money * The Fischer Effect * Rearrange definition of real interest rate: * Nominal interest rate = Inflation rate + real interest rate * Real interest rate is determined by saving & inve stment in the loanable funds market * MS growth determines inflation rate This equation shows how the nominal interest rate is determined * In long run, money is neutral, so a change in the money growth rate affects the inflation rate but not the real interest rate * So, nominal interest rate adjusts one-for-one with changes in the inflation rate * The inflation tax applies to people’s holdings of money, not their holdings of wreath * Fishcher effect: an increase in inflation causes an equal increase in the nominal interest rate, so the real interest rate is unchanged What are the costs of inflation? How serious are they? * The inflation fallacy: most ppl think inflation erodes real income * Inflation is a general increase in price of the things ppl buy & the things they sell (i. e. labour) * In long run, real incomes are determined by real variables, not inflation rate * Shoeleather costs: the resources wasted when inflation encourages ppl to reduce their money holdings * In cludes the time & transactions costs of more frequent bank withdrawals * Menu costs: the costs of changing prices Printing new menus, mailing new catalogs * Misallocation of resources from relative-price variability: Firms don’t all raise prices @ the same time, so relative prices can vary which distorts the allocation of resources * Confusion & inconvenience: inflation changes the yardstick we use to measure transactions, complicates long-range planning & the comparison of dollar amts over time * Tax distortions: inflation makes nominal income grow faster than real income, taxes are based on nominal income, & some are not adjusted for inflation, so†¦ inflation causes ppl to pay more taxes even when their real incomes don’t increase * Arbitrary redistributions of wealth Higher-than-expected inflation transfers purchasing power from creditors to debtors: debtors get to repay their debt w/ dollars that aren’t worth as much * Lower-than-expected inflation tran sfers purchasing power from debtors to creditors * High inflation is more variable & less predictable than low inflation * So, these arbitrary redistributions are frequent when inflation is high * Costs are high for economies experiencing hyperinflation * For economies w/ low inflation ( 0, â€Å"Capital outflow†, domestic purchases of foreign assets exceed foreign purchases of domestic assets * Capital is flowing out of country * When NCO < 0, â€Å"Capital inflow†, foreign purchases of domestic assets exceed domestic purchases of foreign assets * Capital is flowing into the country * Variables that Influence NCO * Real interest rates paid on foreign assets or domestic assets * Perceived risks of holding foreign assets * Gov’t policies affecting foreign ownership of domestic assets * The equality of NX & NCO * An accounting identity: NCO = NX * Arises b/c every transactions that affects NX also affects NCO by the same amt (And vice versa) * When a foreigner pur chases a good from Canada, * Can’n exports & NX increase The foreigner pay w/ currency or assets, so the Can’n acquires some foreign assets, causing NCO to rise * An accounting identity: NCO=NX * Arises b/c every transaction that affects NX also affects NCO the same amt ( & vice versa) * When a Can’n citizen buys foreign goods, * Can’n imports rise, NX falls * The Can’n buyer pays w/ Can’n dollars or assets, so the other country acquires Can’n assets, causing Can’n NCO to fall * Saving, Investment, & international Flows of Goods & Assets * Y = C + I + G + NX accounting identity * Y – C – G = I + NX rearranging terms * S = I + NX since S = Y – C – G * S = I + NCO since NX = NCO * When S > I, the excess loanable funds flow abroad in the form of positive net capital outflow, NCO >0 * When S e =P*/P implies that the nom exchange rate between 2 countries should equal the ratio of price lvls * If the 2 cou ntries have diff inflation rates, then e will change over time: * If inflation is higher in Mexico than in Canada, Then P* rises faster than P, so e rises – the dollar appreciates against the peso * If inflation is higher in Canada than in Japan, then P rises faster than P*, so e falls- the dollar depreciates against the yen * Limitations of PPP theory, why exchange rates do not always adjust to equalize prices across countries: * Many goods cannot easily be traded: * i. e. haircuts, going to movies * Price differences on such goods cannot be arbitraged away * Foreign, domestic goods not perfect substitutes: * i. e. some Can’n consumers prefer Toyatos over Chevys * Price differences reflect taste differences * Nonetheless, PPP works well in many cases, especially as an explanation of long-run trends * i. e.PPP implies: the greater a country’s inflation rate, the faster its currency should depreciate (relative to a low-inflation country like Canada) * Interest ra te determination in a small open economy w/ perfect Capital mobility * Why do interest rates in Canada & the U. S. tend to move up & down together? * Canada is a small open economy w/ perfect capital mobility * â€Å"small† = small part of the world economy * Canada is an economy w/ perfect capital mobility b/c * Can’ns have full access to world financial markets, * And the rest of the world has full access to the Can’n fin’l market * This means that the real interest rate in Canada should equal the real rate prevailing in the world U. S. r= r^w * Perfect Capital mobility: theory that real interest rate in Canada should equal that in the rest of the world is known as interest rate parity * Limitations: real interest rate in Canada is not always = to the real interest rate in the rest of the world b/c†¦ * Fin’l assets carry w/ them the possibility of default * Fin’l assets offered for sale in different Chapter 13: Macroeconomic theory of the open economy In an open economy, what determines the real interest rate? The real exchange rate? * Market of loanable Funds S=I + NCO * Supply of loanable funds = saving * A dollar of saving can be used to finance * The purchase of domestic capital * The purchase of foreign asset * So, demand for loanable funds=I + NCO * S depends +vely on the real interest rate, r * I depends –vely on r * Real interest rate, is the real return on domestic assets * A fall in r makes domestic assets less attractive relative to foreign assets * Can’ns purchase more foreign assets * Can’ns purchase fewer domestic assets * NCO rises * The supply & demand for loanable funds depend on the real interest rate * A higher real interest rate encourages ppl to save & raises the quantity of loanable funds supplied * The interest rate adjusts to bring the supply & demand for loanable funds into balance * At eq’m interest rate, the amt that ppl want to save exactly balances the des ired quantities of domestic investment & foreign investment * Loanable funds market diagram * R adjusts to balance supply & demand in the LF market * Both I & NCO depend –vely on r, so the D curve is downward-sloping * * In small open economy w/ perfect capital mobility, i. e. Canada, the domestic interest rate = world interst rate * As a result, the quantity of loanable funds made available by the savings of Can’ns does not have to equal the quantity of loanable funds demanded for domestic investment * The difference between these two amts is NCO * * How are the markets for loanable funds & foreign-currency exchange connected? The market for foreign-currency exchange exists b/c ppl want to trade w/ ppl in other countries, but they want to be paid in their own currency * 2 side of foreign-currency exchange market are represented by NCO & NX * NCO represents the imbalance between the purchases & sales of capital assets * NX represents the imbalance b/w exports & imports of goods & services * Another identity from preceding chapter: NCO = NX * In the market for foreign-currency exchange, * NX is the demand for dollars: foreigners need dollars to buy Can’n NX * NCO is the supply of dollars: Can’n residents provide/give dollars when they buy foreign assets * S=I + NCO > S – I =NX * What price balances the supply & demand in the market for foreign-currency exchange? * The real exchange rate (E) = e*P/P* The Can’n exchange rate(E) measures the quantity of foreign g/s that trade for one unit of Can’n g/s * E is the real value of a dollar in the market for foreign-currency exchange * The demand curve for dollars (NX) is downward sloping b/c a higher exchange rate makes domestic goods more expensive * The supply curve (NCO) is vertical b/c the quantity of dollars supplied for NCO is unrelated to the real exchange rate * Increase in E makes Can’n goods more expensive to foreigners, reduces foreign demand for Canâ⠂¬â„¢n goods & dollars, does not affect NCO/supply of dollars * The real E adjusts to balance the S & D for dollars * At Eq’m E, the demand for dollars to buy NX exactly balances the supply of dollars to be exchanged into foreign currency to buy assets abroad * Disentangling S&D When can’n resident buys imported goods does the transaction affect s/d in foreign exchange market? * The demand for dollars decrease * The increase in imports reduce NX which we think of as demand for dollars (NX= net demand for dollars) * When foreigner buys Can’n asset, does the transaction affect supply/ demand in the foreign exchange market * The supply of dollars falls * NCO = Net supply of dollars How do gov’t budget deficits affect exchange rate & trade balance? * The effects of a budget deficit * National saving falls * The real interest rate rises * Domestic investment & net capital outflow both fall * The real exchange rate appreciates * Net export fall (or the trade de ficit increases) * Eq’m in the Open Economy NCO is the variable that links these two markets: S = I + NCO, NCO =NX * In the market for loanable funds, supply comes from national saving & demand comes from domestic investment & NCO * In the market for foreign-currency exchange, suplly comes from NCO & demand comes from BX * * * Eq’m in the open economy * Prices in the loanable funds market & the foreign-currency exchange market adjust simultaneously to balance supply & demand in these two markets * As they, they determine the macroeconomic variables of national saving, domestic investment, NCO, and NX How do other policies or events affect the interest rate, exchange rate, and trade balance? The magnitude & variation in important macroeconomic variables depend on the following: * Increase in world interest rates * Gov’t budget deficits & surpluses * Trade policies * Political & economic stability * Three steps in using the model to analyze these events * Determin e which of the s/d curves e/ event effects * Determine which way the curves shift * Examine how these shifts alter the economy’s equilibrium * * * Increase in world interest rates * Events outside Canada that cause world interest rates to change can have important effects on the Can’n economy * In a small open economy w/ perfect mobility, an increase in the world interest rate†¦ * Crowds out domestic investment, * Cause NCO to increase & * Causes the dollar to depreciate * The effects of an increase in the gov’t budget deficit * * Gov’t budget deficits & surpluses * b/c a gov’t budget deficit represents negative public saving, it reduces national saving, and therefore reduces†¦ * the supply of loanable funds * NCO * The supply of Can’n dollars in the market for foreign-currency exchange * Trade Policy: is a gov’t policy that directly influences the quantity of goods @ services that a country imports/exports * Tariff: a tax o n imported goods * Imported quota: a limit on quantity of a good produces abroad and sold domestically * Initial impact is on imports – which affects NX NX are the sources of demand for dollars in the foreign-currency exchange market * Imports are reduced at any exchange rate, & NX will rise * This increases the demand for dollars in the foreign currency exchange market * * * There is no change in the market for loanable funds, and therefore, no change in NCO * B/c foreigners need dollars to buy Can’n NX, there is an increased demand for dollars in the market for foreign-currency * This leads to an appreciation of the real exchange rate * Effect of an import quota * An appreciation of the dollar in the foreign exchange market discourages exports * This offsets the initial increase in NX due to import quota * Trade policies do not affect the trade balance Political Instability & Capital Flight * Capital flight * Is large & sudden reduction in demand for assets located i n a country * Has its largest impact on the country from which the capital is fleeing, but it also affects other countries * If investors become concerned about the safety of their investments, capital can quickly leave an economy * Interest rates increase & the domestic currency depreciates * When investors around the world observed political problems in Mexico in 1994, they sold some of their Mexican assets and used the proceeds to by assets of the other countries * This increased Mexican NCO An increased demand for loanable funds in the loanable funds market leads the interest rate to increase * This increased the supply of pesos in the foreign-currency exchange market * * Chapter 14: Aggregate Demand & Supply What are economic fluctuations? What are their characteristics? * Over LR, Real GDP grows about 2%/yr on avg * In SR, GDP fluctuates around its trend * Recessions: falling real incomes & rising unemployment * Depressions: severe recessions (very rare) * SR economic fluctuat ions are often called business cycles * 3 facts about economic fluctuations * Are irregular & unpredictable * Most macro’c quantities fluctuate together * As output falls, unemployment rises Use mode of AD & AS to study fluctuations * Short run, changes in nominal variables (Ms or P) can affect real variables (Y/U-rate) How does the model aggregate demand & supply explain economic fluctuations? * Aggregate-demand curve – shows the quantity of goods & services that households, firms, & the gov’t want to buy @ each price level * Aggregate-supply curve- shows the quantity of goods & services that firms choose to produce and sell at each price level * Why does the aggregate-demand curve slope downward? What shifts the AD curve? * AD curve shows quantity of g/s demanded in the economy at any given P * Y=C+I+G+NX * Assume G fixed by gov’t policy Increase in P reduces the quantity of g/s demanded b/c: * The wealth effect (c falls) * The dollars ppl hold buy fewe r g/s so real wealth is lower * Ppl feel poorer * i. e. a stock market boom makes households feel wealthier, C rises, the AD curve shifts right; preferences: consumption, saving tradeoff; tax hikes/cuts * Interest rate effect (I falls) * Buying g/s requires more dollars * To get these dollars, ppl borrow more * Drives up interest rates * i. e. firms buy new computers; expectations, optimism/pessimism; Interest rates, monetary policy; investment tax credit/other tax incentives * The exchange rate effect (NX falls) * Real exchange rate= exP/P* Increase real exchange rate, Can’n exchange rate appreciates * Can’n exports more expensive to ppl abroad, imports cheaper to Can’n residents * i. e. booms/recessions in countries that buy our exports (recession in the U. S. ); appreciation/depreciation resulting from int’l speculation in foreign exchange market * Changes in G * Federal spending i. e defense; provincial & municipal spending i. e roads, schools What is the slope of the aggregate-supply curve in the short run? Long run? What shifts AS curve? * AS curve shows the total quantity of g/s firms produce & sell at any given P * Upward-sloping in short run * Vertical in long run Natural rate of output (Yn) us the amt of output the economy produces when unemployment is at its natural rate * Yn is also called potential output/full-employment output * Yn determined by the economy’s labour (L) capital (K), and natural resources(N), and on the lvl of tech(A) * Changes in L/Natural rate unemployment: immigration, Baby-boomers retire, gov’t policies reduce natural u-rate * Changes in K/H: Investment in factories, more ppl get college degrees, factories destroyed by a hurricane * Changes in natural resources(N): discovery of new mineral deposits, reduction in supply of imported oil, changing weather patterns that affect agricultural production * Changes in tech (A): productivity improvements from technological progress * An increase in P does not affect any of these, it does not affect Yn (Classical dichotomy) * Any even that changes any of the determinants of Yn will shift LRAS * i. e. immigration increases L, causing Yn to rise * Over the LR, tech progress shifts LRAS to the right & growth in the MS shifts AD to the right * Ongoing inflation & growth in output * The SRAs curves is upward sloping: * Over the period of 1-2 yrs, an increase in P causes an increase in quantity of g/s supplied * If AS is vertical, fluctuations in AD do ot cause fluctuations in output/employment * If AS slopes up, then shifts in AD do affect output & employment * Three theories: * Sticky wage theory, Imperfection- nominal wages are sticky in the short run, they adjust sluggishly, due to labour contracts; firms & workers set the nominal wage in advance based on Pe, the price lvl expected to prevail * If P>Pe, revenue is higher, but labour cost is not. Productions is more profitable, so firms increase output & employment * Hence, hi gh P causes higher Y, so the SRAS curve slopes upward * Sticky price theory, Imperfection- many prices are sticky in the short run: due to menu costs, the costs of adjusting prices, i. e. ost of printing new menus, the time required to change price tags * Firms set sticky prices in advance based on Pe * Suppose the BoC increases the MS unexpectedly, in LR P will rise * In SR, firms w/o menu costs can raise their P immediately * Firms w/ menu costs wait to raise prices, meantime , their prices are relatively low, which increase demand for their products, so they increase output & employment * Hence, higher P is associated w/ higher Y, so the SRAS curve slopes upward * Misperceptions- imperfection: firms may confuse changes in P with changes in the relative price of the products they sell, if P rises above Pe- a firm sees its price rise before realizing all prices are rising. The firms may believe its relative price is rising & may increase output & employment, * An increase in P can cause an increase in Y, making the SRAS curve upward-sloping * What 3 theories have in common: Y deviates from Yn, when P deviates from Pe * Y(Output) = Yn + a(P-Pe) * Yn-Natural rate of output (LR) * a>0, measures how much Y responds to unexpected changes in P * P, actually price lvl; Pe, expected price lvl * SRAS & LRAS The imperfections in these theories are temp, over time†¦ * Sticky wages & prices become flexible * Misperceptions are corrected * In LR†¦ * Pe = P, Y=Yn, AS is vertical * Unemployment is at its natural rate * Why the SRAS curve might shift * Everything that shifts LRAS shifts SRAS too * Also, Pe shifts SRAS: * If Pe rises, workers & firms set higher wages * At e/ P production is less profitable, Y falls, SRAS shifts left * * Economic fluctuations * Caused by events that shift the AD/AS curves * 4 steps to analyzing economic fluctuations: * Determine whether the event shifts AD & AS * Determine whether curve shifts left/right Use AD-AS diagram to see how the shift changes Y & P in the short run * Use AD-AS diagram to see how economy moves from new SR eq’m to new LR eq’m * I. e. Stock market crash : C falls, so AD shifts left; SR eq’m at B, P & Y lower, unemp higher; Over time Pe fals, SRAS shifts right, until LR eq’m at C, Y and unemp back at initial lvls * * i. e. oil prices rises: increases costs, shifts SRAS Left, SR eq’m at point B, P higher, Y lower, unemp higher; from A to B, stagflation: a period of falling output & rising prices; if policymakers do nothing: low employment causes wages to fall SRAS shifts right until LR eq’m at A, or policymakers could use fiscal/ monetary policy to increase Ad & accommodate AS shift: Y back to Yn, but P permanently higher