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Final Exam Review

changes in price levels what

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Unformatted text preview: rrow What is the Taylor Rule? 2 + current rate of inflation + .5(current inflation – target) + .5(current output – target) What are the stages of the financial crisis? Bubble forming, bubble bursting, financial meltdown and possible depression How does this apply to Great Depression? Forming = stock prices rose very high Bursting = banks hoarded money, margin too low, people hoarded money, stock prices fell Meltdown = stock market collapsed How does this apply to 2008? Forming = housing market prices went up Bursting = foreclosures Meltdown = people tried selling their houses and couldn’t Why did housing market prices go up? Interest rates were so low and people had no organizational checks on people with loans for mortgages so the asset wasn’t worth the price What are the three steps in getting out of a financial crisis? Triage, treatment, rehabilitation How does this apply to Great Depression? Triage = FDR declared bank holiday Treatment = WW2 Rehab = separated banks from other institutions, Glass Deagle Act How does this apply to 2008? Triage = bailed TARP, bailout banks Treatment = fiscal stimulus Rehab = Dodd ­Frank Law Economists Business cycle? Hayek Progressive tax? Keynes Fiscal policy to control AD? Keynes Monetarism? Friedman Bubble formation? Hayek Flat tax? Hayek or Friedman Government spending would lead to increased taxes? Friedman Low interest rates to decrease savings rate and increase spending? Keynes “In the long run, we’re all dead”? Keynes Negative taxation? Friedman Keynes? Government stimulus to effect AD, increase taxes to slow AD, public management, gov debt didn’t matter Freidman? Monetarism, gov policy is limited, monetary policy is key, money supply stable, private market interests aligned with public good, additional taxation, believed gov spending washed out private investing How did he think the government should borrow money? Taxing, borrowing, creating new money Hayek? Free market, lassiez faire, never inject money supply, savings and investments, ANTI ­progressive taxes...
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