econ305_14_Nov18

econ305_14_Nov18 - StabilizationPolicies about two policy...

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slide 1 Stabilization Policies …about two policy debates: 1. Should policy be active or passive? 2. Should policy be by rule or discretion?
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slide 2 Question 1: Should policy be active or Should policy be active or passive? passive?
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Growth rate of real GDP, 1970-2006 -4 -2 0 2 4 6 8 10 1970 1975 1980 1985 1990 1995 2000 2005 Average growth rate Percent change from 4 quarters earlier
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slide 4 Increase in unemployment during  recessions peak trough increase in no. of unemployed persons (millions) July 1953 May 1954 2.11 Aug 1957 April 1958 2.27 April 1960 February 1961 1.21 December 1969 November 1970 2.01 November 1973 March 1975 3.58 January 1980 July 1980 1.68 July 1981 November 1982 4.08 July 1990 March 1991 1.67 March 2001 November 2001 1.50
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slide 5 Arguments for active policy Recessions cause economic hardship for millions of people. The model of aggregate demand and supply (Chaps. 9-13) shows how fiscal and monetary policy can respond to shocks and stabilize the economy.
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slide 6 Arguments against active policy inside lag : the time between the shock and the policy response. takes time to recognize shock takes time to implement policy, especially fiscal policy outside lag : the time it takes for policy to affect economy. If conditions change before policy’s impact is felt, the policy may destabilize the economy.
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slide 7 Automatic stabilizers definition: policies that stimulate or depress the economy when necessary without any deliberate policy change. Designed to reduce the lags associated with stabilization policy. Examples: income tax unemployment insurance welfare
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slide 8 Forecasting the macroeconomy Because policies act with lags, policymakers must predict future conditions. Two ways economists generate forecasts: Leading economic indicators data series that fluctuate in advance of the economy Macroeconometric models Large-scale models with estimated parameters that can be used to forecast the response of endogenous variables to shocks and policies
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This note was uploaded on 03/25/2010 for the course ECON 305 taught by Professor Vasyl(basil)golovetskyy during the Spring '09 term at Simon Fraser.

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econ305_14_Nov18 - StabilizationPolicies about two policy...

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