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POLICYCONTROVERSIESCLASS - Macroeconomic Policy Issues and...

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1 Macroeconomic Policy Issues and Controversies Overview of Macro Policy SR versus LR Expectations and Credibility Taylor Rule Practical 1 Macroeconomics Gov’t Deficits and debt Evolution of Macro Financial Crisis of 2007 Current Controversy Krugman return of dep econ 200 years ? Can the Government influence macro conditions? Should they? Short-Run – Keynesian – Yes Economy unstable Fiscal/ Monetary policy impact agg D Long-Run – Classical – Perhaps Not Economy self adjusting if left alone 2 Economy self-adjusting if left alone Fiscal Policy – crowding out – no effect May be destabilizing in short-run – pro-cyclical Monetary Policy – only P May be destabilizing in SR - Pro cyclical Vertical Phillips curve Rational Expectations In the News? 3
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