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Short Asnwers 1. Explain the real interest rate/risk premium, what do we mean by the markup,...

Short Asnwers

1. Explain the real interest rate/risk premium, what do we mean by the markup, what factors influence price setting and wage setting?

2. What does the Phillips curve show, what factors shift the Phillips curve, what does the IS curve show, what factors shift the IS curve, how should higher-than-expected inflation affect future expected inflation/why is it hard to keep GDP above the natural level for a long time,

3. Define the natural unemployment rate/output level, or maybe explain how technology can affect unemployment and inequality

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Answer #1

1. Real interest rate is the total amount of interest the creditor receives or debtor pays after subtracting inflation. According to Fisher equation: Real interest rate is approximately the nominal interset rate minus from inflation rate.

Risk premium is the total amount that an investor would like to earn for the risk involved with a particular investment. Risk premium is any return above the risk free rate .

Markup in economics: is the ratio between the cost of a good or services and its selling price. And in finance, Markup means the difference between an investments lowest current offering price among dealers and the higher price dealers charges from customers.

factor influence price setting and wage setting:

  • level of unemployment
  • condition of labor market
  • workers condition
  • productions costs
  • distribution costs
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