The fixed exchange rate system imposes strict discipline on the central bank.

The economy is vulnerable to foreign but not domestic demand disturbances

The Taylor Rule schedule is irrelevant

Shifts in world interest rates can pose a risk to the sustainability of the fixed exchange rate

The Aggregate Supply Curve

The Battle of the Mark-ups

The Phillips Curve

Okun’s Law

Price mark-ups over labour costs have remained relatively constant

Real wages increase with technical progress resulting in a reduction in labour demand so the product of real wages and employment remains constant.

The battle of the mark-up ensures that the change in nominal wages equals inflation

Technical progress has continuously generated higher incomes

Real unit labour costs

Nominal unit labour costs

Total factor productivit

Labour share of total income

the underlying rate of inflation to accelerate because the actual inflation rate exceeds the underlying rate of inflation.

.prices will decline because there is an excess supply of goods (neoclassical assumption).

output to decline because there is an excess supply of goods (Keynesian assumption).

consumer spending to decline because goods are more expensive