Lecture 12 Intro to Political Economy

Lecture 12 Intro to Political Economy - Lecture 12: Intro...

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Lecture 12: Intro to Political Economy; The Politics of Fiscal Policy Krugman - Fiscal policy and political business cycles: today - Monetary policy and rational expectations Keynesian Fiscal Policy - Slumps in economic activity arise from the choices consumers make, and therefore are avoidable. - Sequence o Recessions and depressions are caused by insufficient consumer demand. People start to hold money, producers slow down production, therefore lay off workers and now they have less money to spend. o Solution: Keep people spending money. - The Phillips Curve o Characterizes the marginal trade-offs between inflation and unemployment. o Frontier: The best set of outcomes which can be achieved by policy Frontier shifts with structural changes in the economy o High unemployment leads to less money in the economy therefore inflation rises - The Partisan Phillips Curve o The poor care more about employment than inflation. o
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Lecture 12 Intro to Political Economy - Lecture 12: Intro...

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