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MONETFISCALPOLCLASS

MONETFISCALPOLCLASS - 1 SR Monetary(and Fiscal Fed ¢...

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Unformatted text preview: 1 SR Monetary (and Fiscal) ¡ Fed ¢ Structure, independence, goals, tools, reserves and money creation ¢ Balance Sheet ¡ Monetary Policy ¢ Fed-> Reserves/Ms->r->I,C,NX,D->y,p ¢ Can’t push on a string -Liquidity Trap 1 ¢ Crisis Policies ¡ Fiscal Policy ¢ G, T ->D->y,p ¢ Multipliers ¢ Lags ¢ Auto Stabilizers / Structural Deficit In the News? 2 Course Issues ¢ Online Midterm – next week ¡ 1 hour - Tuesday 10/19 6pm and Thursday 10/21 6pm. ¡ weeks 1-7 in 50 multiple choice questions more or less randomly drawn from hw 1-7. 3 ¢ Bus & Liberal arts career fair 10/15 ¢ Goldman 10/14? 2 FOMC Statement 9/21/2010 ¡ ..pace of recovery in output and employment has slowed in recent months. ¢ Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. ¢ Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak structures continues to be weak. ¢ Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. ¢ Bank lending has continued to contract, but at a reduced rate in recent months. ¡ …gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term. (see full) 4 Fiscal Policy ¡ Demand Management ¢ Short-run Keynesian ¢ Shift demand ¢ Stabilization, counter-cyclical ¡ Fiscal Policy ¢ change G, T for stabilization purposes 5 ¢ G ↑→ D ↑→ P,y ↑ (recession, mostly y) ¢ T ↓→ (Y-T) ↑→ C ↑→ D ↑→ P,y ↑ “ ¢ Multiplier effect ¢ Partial crowding out, maybe G ↑→ i ↑→ I ↓ ¡ or crowding in More Fiscal Policy ¡ SR Fiscal Policy – Agg D ¢ Why – too little private demand C,I ¢ G,T->D->Y, P (mostly y in recession) ¡ Congress, President ¢ Multipliers Δ Y/ Δ G=1/(1-mpc) – impact of policy ¡ Δ Y/ Δ T=-mpc/(1-mpc) ¡ Balanced Budget Δ Y/( Δ G=- Δ T)=1 ¢ Discretionary versus automatic stabilizers 6 ¢ Discretionary versus automatic stabilizers ¡ Full employment or structural deficits ¡ SR deficits ¢ Lags-recognition, implementation, impact ¢ Long Run Issues – ¢ Partial crowding out, maybe G ↑→ i ↑→ I ↓ ¡ or crowding in ¢ deficits 3 Role of Fiscal Policy – 2002 Walsh ¡ Recession 2001 ¡ Use is unusual – why? ¡ Automatic Stabilizers - tax, spending ¢ State & local pro cyclical ¡ Lags (avg recession 11 mos) 7 ¢ implementation - long ¢ impact Fiscal Policy 2009 Leduc ¡ Monetary Policy First – Why?...
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MONETFISCALPOLCLASS - 1 SR Monetary(and Fiscal Fed ¢...

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