Introduction¶
The main instrument for central banks is the interest rates
Inflation \(\propto\) Wage Rate
Immediately after the pandemic, there is a sudden growth as: - people are desperate to do something now - savings from all the time inside
Phases of economy¶
| Phase | Indicator | Unemployment | Inflation | Policy: Incentivize | Policy: Action |
|---|---|---|---|---|---|
| Recovery | |||||
| Boom | actual < natural | actual > potential | |||
| Recession | Rule of thumb: 2 consecutive quarters of deflation | actual > natural | actual < potential | Investments | Lower interest rate Subsidies |
| Consumer spending | Universal Basic Income/Direct income transfers to people (only effective till a limit - excessive causes inflation) Tax reduction |
Trickle-down Effect¶
The benefits of improving a particular country/sector will improve others also eventually