1Economics 102Lecture 22: Policy DebatesLECTURE 22POLICY DEBATES1Policy Debates❧This course has introduced you to the basic tools economists use to analyze the behavior of the economy as a whole and the impact of policies on the economy. ❧Now, we look at both sides of five important debates over macroeconomic policy.LECTURE 22POLICY DEBATES2In this lecture, look for the answers to these questions:What are the arguments on both sides of each of the following debates?❧Should policymakers try to stabilize the economy?❧Should monetary policy be made by rule or discretion?❧Should the central bank aim for zero inflation?❧Should the government balance its budget?❧Should the tax laws be reformed to encourage saving?
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2LECTURE 22POLICY DEBATES31. Should Policymakers Try to Stabilize the Economy?Arguments for active stabilization:❧Economies are . E.g., pessimism of households and firms causes ADto fall which causes a recession. LECTURE 22POLICY DEBATES4Growth rate of real GDP, 1970-2006LECTURE 22POLICY DEBATES51. Should Policymakers Try to Stabilize the Economy?Arguments for active stabilization:❧Economies are inherently unstable. E.g., pessimism of households causes ADto fall which causes a recession. ❧Recessions cause economic hardship for millions of people.