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- change 'stationary inflation rate that assert' to 'stationary inflation rate that asserts'
- change 'it reverse the pervese' to 'it reverses the perverse'
- change 'qualitive' to 'qualitative'.
Copy file name to clipboardExpand all lines: lectures/money_inflation_nonlinear.md
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@@ -35,14 +35,14 @@ As in that lecture, we discussed these topics:
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* an **inflation tax** that a government gathers by printing paper or electronic money
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* a dynamic **Laffer curve** in the inflation tax rate that has two stationary equilibria
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* perverse dynamics under rational expectations in which the system converges to the higher stationary inflation tax rate
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* a peculiar comparative stationary-state analysis connected with that stationary inflation rate that assert that inflation can be *reduced* by running *higher* government deficits
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* a peculiar comparative stationary-state analysis connected with that stationary inflation rate that asserts that inflation can be *reduced* by running *higher* government deficits
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These outcomes will set the stage for the analysis of {doc}`laffer_adaptive` that studies a version of the present model that uses a version of "adaptive expectations" instead of rational expectations.
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That lecture will show that
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* replacing rational expectations with adaptive expectations leaves the two stationary inflation rates unchanged, but that $\ldots$
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* it reverse the pervese dynamics by making the *lower* stationary inflation rate the one to which the system typically converges
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* it reverses the perverse dynamics by making the *lower* stationary inflation rate the one to which the system typically converges
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* a more plausible comparative dynamic outcome emerges in which now inflation can be *reduced* by running *lower* government deficits
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## The model
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* the figure indicates that inflation can be *reduced* by running *higher* government deficits, i.e., by raising more resources through printing money.
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```{note}
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The same qualitive outcomes prevail in {doc}`money_inflation` that studies a linear version of the model in this lecture.
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The same qualitative outcomes prevail in {doc}`money_inflation` that studies a linear version of the model in this lecture.
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