Ch15 - 12/8/10 Question 1: about two policy debates: 1....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
12/8/10 1 …about two policy debates: 1. Should policy be active or passive? 2. Should policy be by rule or discretion? 1 CHAPTER 15 Stabilization Policy Question 1: Growth rate of U.S. real GDP -4 -2 0 2 4 6 8 10 1970 1975 1980 1985 1990 1995 2000 2005 2010 Percent change from 4 quarters earlier Average growth rate 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 4 CHAPTER 15 Stabilization Policy Arguments for active policy Recessions cause economic hardship for millions of people. The Employment Act of 1946: “It is the continuing policy and responsibility of the Federal Government to…promote full employment and production.” The model of aggregate demand and supply (Chaps. 9-13) shows how fiscal and monetary policy can respond to shocks and stabilize the economy. 5 CHAPTER 15 Stabilization Policy Arguments against active policy Policies act with long & variable lags, including: 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.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12/8/10 2 6 CHAPTER 15 Stabilization Policy 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 7 CHAPTER 15 Stabilization Policy 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 8 CHAPTER 15 Stabilization Policy The LEI index and real GDP, 1960s source of LEI data: The Conference Board The Index of Leading Economic Indicators includes 10 data series ( see p.258 ). 9
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/08/2011 for the course ECON 362 taught by Professor Birz during the Fall '08 term at Binghamton University.

Page1 / 6

Ch15 - 12/8/10 Question 1: about two policy debates: 1....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online