20+Macroeconomic+Policy%2C+Part+1

20+Macroeconomic+Policy%2C+Part+1 - 1 20-1 Macroeconomic...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 20-1 Macroeconomic Policy and Aggregate Demand and Supply Analysis, Part 1 20-2 Agenda 1. The Objectives of Macroeconomic Policy 2. Stabilizing Inflation and Economic Activity a. Demand Shocks b. Permanent Supply Shocks 20-3 The Objectives of Macroeconomic Policy • Macroeconomic policy has 2 main objectives: 1. Stabilizing output around potential output, and 2. Stabilizing inflation at a low level. • Policies to achieve these objectives are called stabilization policies . 20-4 The Objectives of Macroeconomic Policy • Stabilization policies primarily involve: 1. The government, i.e., fiscal policy , and 2. The central bank, i.e., monetary policy . • However, in most economies, the principle responsibility for stabilization policy lies with the central bank and monetary policy . 2 20-5 The Goal of Stabilizing Economic Output • A goal of stabilizing economic output around potential output will also stabilize the unemployment rate around the natural rate of unemployment. – That is, when Y t ≈ Y P , then U t ≈ U N . – Alternatively, maximum sustainable employment has been achieved. 20-6 The Goal of Stabilizing Economic Output • A zero unemployment rate is both unattainable and undesirable because of both: 1. Frictional unemployment , and 2. Structural unemployment. 20-7 The Goal of Stabilizing Economic Output • Unemployment is central to stabilization policy because: 1. High unemployment involves substantial personal suffering for the unemployed, and 2. High unemployment leaves labor and capital resources idle, reducing economic output....
View Full Document

This note was uploaded on 03/13/2012 for the course ECON 100B taught by Professor Wood during the Fall '08 term at Berkeley.

Page1 / 8

20+Macroeconomic+Policy%2C+Part+1 - 1 20-1 Macroeconomic...

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