Lecture 4 - Day 4 - Macroeconomic Tools and the Classical...

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Day 4 - Macroeconomic Tools and the Classical Model How do we achieve the three goals of employment, growth and price stability? Macroeconomic Tool Options: Monetary Policy – consists of tools that can change the amount of money and credit available in the economy, administered by the Federal Reserve System Fiscal Policy – the government manipulates its expenditures and taxation (revenue) to achieve certain goals, administered by the executive and legislative branches of the Federal Government. Recession: A slowing down of economic activity, resulting in an increase in unemployment and in excess industrial capacity. Technically, a decline in the GDP for two or more consecutive quarters. Depression: prolonged recession How well have these policies worked for 60 years? Rise of Pax Americana: 1946-1960’s o Out of WWII leading the world in production o Rise in real weekly earnings 2.3% a year o Strong U.S. growth, about 4% o Productivity increases at 3.2% o Unemployment averaged 4%, low o Inflation at about 2% Very active role of government in this era; focus on economy– highways, housing, anti-poverty programs, tax cuts… Some people left out…women, people of color, rural poor…started to ask for more. Decline of Pax Americana:
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This note was uploaded on 10/19/2011 for the course ECON 104 taught by Professor Dolenc during the Spring '08 term at UMass (Amherst).

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Lecture 4 - Day 4 - Macroeconomic Tools and the Classical...

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