1Intro Macro N. Sheflin 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 NOTESMacroeconomic 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 POINTSSR Monetary and Fiscal Policy •Fiscal government spending and tax multiplier concept opartial crowding out oautomatic stabilizers •accommodative monetary policy •liquidity trap/ zero lower bound •tight money policies / credit crunch •monetary policy and owealth effect ostock market oexchange rates and X and M LR Monetary Policy •LR impact of Ms is P onlyoSo Fed’s only LR focus should be on controlling inflation •role of inflation expectations and Fed credibility •rules versus discretion in monetary policy oconstant 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 oTaylor Rule LR Fiscal Policy •Complete crowding out of I so G not useful oWill 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 oLower 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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