assign14 - 1 Intro Macro N. Sheflin Assignment 14 The End...

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1 I n t r o M a c r o N . S h e f l i n Assignment 14 The End is Near – look for announcements on final etc on Sakai You must see me at once with final exam conflict documentation Start studying via the Review Guide and Essential Questions NOTES Macroeconomic Policy Issues and Controversies – Monetary and Fiscal Policy Issues, Government Deficits and Debt, Evolution of Macroeconomics and Macroeconomic ‘Schools’ Also Investment Game Round 5 – A quick look at derivatives. KEY POINTS SR Monetary and Fiscal Policy Fiscal government spending and tax multiplier concept o partial crowding out o automatic stabilizers accommodative monetary policy liquidity trap/ zero lower bound tight money policies / credit crunch monetary policy and o wealth effect o stock market o exchange rates and X and M LR Monetary Policy LR impact of Ms is P only o So Fed’s only LR focus should be on controlling inflation role of inflation expectations and Fed credibility rules versus discretion in monetary policy o constant money growth rule (Friedman) since MV=PY, with V constant/stable and wishing to hold P constant, M should grow at rate of growth of Y (real gdp) in long-run – i.e., not react to SR fluctuations in Y o Taylor Rule LR Fiscal Policy Complete crowding out of I so G not useful o Will only replace productive I with G Increases in G will result in more S and less C as rational consumers save up to pay the inevitable future tax increase so again, G has no impact – Ricardian Equivalence With vertical LR Phillips curve at NAIRU level of Unemployment, no point in trying to lower unemployment – will only lead to more inflation with no lr decline in unemployment o Lower NAIRU by lowering structural and frictional unemployment – education, etc. Government Deficits and Debt Deficits and debt and net debt – federal government only Structural and cyclical deficits Impact of deficits/debt in SR and LR Harm of Deficits/Debt Social Security and Medicare issues History of Macroeconomics (too much here – ignore if not helpful) ‘CLASSICAL’ MACROECONOMICS In the beginning, there was just economics which had little to say about business cycles, except perhaps that they were a
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2 necessary ‘cleansing’ of the excesses of prosperity. Pre-Keynesian economists had little useful explanation or policy recommendations for dealing with the great depression, since in the ‘classical’/invisible hand view, the economy was self-correcting and efficient. Not an organized ‘school’, rather a body of micro-based ideas including:
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assign14 - 1 Intro Macro N. Sheflin Assignment 14 The End...

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