Summing Up - Econ 1021 CHAPTER Fall 2009 Reading: chapter...

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M M ACROECONOMICS ACROECONOMICS C H A P T E R SIXTH EDITION SIXTH EDITION N N G G REGORY  REGORY  M M ANKIW ANKIW                      Summing up:       Macroeconomic Policy Debates 1. Should policymakers try to stabilize the economy? 2. Should MP be made by “rule” or “discretion”? 3. Should the central bank aim for a zero rate of  inflation? 4. Should the government balance its budget? 5. Should laws be reformed to encourage saving? 6. Should macroeconomic policies be directed toward  social and environmental problems of the present and  the future? Econ 1021 Fall 2009 Reading: chapter 15; pp. 282-284; chapter 10, section 2 (pp. 240-249), all from Macroeconomics in Context
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slide 2 Should Should  policymakers try to stabilize the  macroeconomy? When the economy contracts, unemployment arises. Markets aren’t competitive and the market outcome can be improved upon Unemployment is a sheer waste of resources. Policymakers have the ability to shift aggregate demand, thereby minimizing unemployment and creating a more stable economy This is Keynesian Keynesian macroeconomics Inside lag Outside lag Lags imply the need for accurate forecasting, or policy winds up being de- stabilizing, rather than stabilizing. Markets are perfectly competitive Crowding out (LR “cost” of using expansionary FP) This is Classical Classical macroeconomics YES! Here’s why… NO! Here’s why…
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slide 3 If “YES” to the use of discretionary policy… what about monetary policy? Important Questions: 1. Should MP be conducted according to “rules” or via “discretion”? 2. If MP is a “rule,” what should the rule be? Target inflation? Should the central bank have a target of a zero rate of inflation? Target interest rates? (e.g., the Taylor Rule)
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slide 4 Should MP be conducted according to “rules” or via  “discretion”? Monetary policy, presently, is flexible. It’s hard to craft a rule that’ll deal with all contingencies. It’s better to appoint good (credible) people to conduct MP, and then let them do the best that they can. 1.
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This note was uploaded on 12/03/2010 for the course ECON 1021 taught by Professor Lang during the Spring '10 term at UChicago.

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Summing Up - Econ 1021 CHAPTER Fall 2009 Reading: chapter...

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