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Macroeconomics
In this case, there are a number of monetary policy prescriptions that apply, all of them expansionary. In terms of open market operations, the Fed should buy Treasuries. This will pump money into the banking system, providing greater means for investment. This will provide the groundwork for economic growth, in particular it will signal that the Federal Reserve is committed to restoring economic growth and halting the growth in unemployment. This policy should improve national income. As investors are not investing, however, this strategy is unlikely to succeed on its own. The Federal Reserve should lower interest rates as well. Investors may be convinced to invest is the risks associated with investment are reduced, and this means reducing the cost of money. This strategy will not inject more money into the banking system, but will encourage investors and consumers to spend more money, increasing liquidity in the system. The national income again should rise as the result of this policy. In each situation, the move is desirable because the economy is slowing down and expansionary policy is needed to restore...
One automatic stabilizer that can prevent the economy from moving too quickly is federal expenditures. The stabilizer can work in this case by increasing government spending in order to diminish the effects of the downturn in private spending and consumer demand. Conversely should the economy heat up, federal spending can be reduced in order to partially cool down the economy.
2. The type of gap that the economy is currently facing is a recessionary gap, characterized by unemployment far above the natural rate, output below capacity and downward pressure on prices. In this case, the desired fiscal policy is to increase spending. This will help to improve capacity utilization, which should also lower unemployment. With enough fiscal stimulus, inflation may increase as well. To complement this fiscal policy, the Federal Reserve should implement expansionary monetary policy. In particular, open market operations are the most appropriate policy for dealing with this situation. They inject money into the economy, creating conditions for investment. However, the persistent low inflation is also cause for…
First, all efforts should be made toward reducing our reliance on fossil fuels instead of encouraging continued reliance on automobiles in the future. Therefore, the available funds should be used to develop alternate transportation methods such as modernized rail systems and even traditional public transportation systems that damage the environment and consume gasoline less than private automobiles on a per-passenger basis. Second, we should be striving to reduce the trend
Macroeconomics Government borrowing is too high and interest rates are too low in many countries; fiscal stimulus does not work and cheap money leads only to inflation. Explain and discuss the various caveats of this macroeconomic problem and what policy measures will you suggest and Why if you are hired as a Junior Policy Advisor in an Advisory Board of Economists in one such country including Canada? Use economic theory, policy,
Macroeconomics The AD-AS model explains how full employment can be reached from a situation of deep recession, assuming no fiscal policy stimulus. The underlying assumption of this theory is that when the economy improves, that this will have an impact on employment. The model therefore assumes a pre-globalization world where increases in aggregate supply on the part of companies in the U.S. will actually be made by U.S. workers. The thesis
Macroeconomics Models The Classical Model (1776-1935) The classical model largely follows the conclusions reached in Microeconomics. The fundamental equilibrium is in the supply and demand for labor. The Demand for Labor and Labor Supply, Income Taxes, and Transfer Payments are the major microeconomic references in the Classic Economic Models (Hicks and Keynes, 1937). Keynesian Models (1936-1969) The simple keynesian model, a greatly oversimplified view of the economy, constructs an equilibrium without referring to the
Macroeconomics Abbott Labs and Macroeconomics It is a fact that the recent economic downturn affected every individual and company in some way, but companies that had solid business plans prior to the start of the crisis were better able to weather the financial storm. For example, a company that had a diverse range of business that included both products that depended the level of a consumer's disposable income and another group of
Macroeconomics Budget deficits today will tend to lower the rate of growth in the economy in the future. Budget deficits result in higher rates of public debt. While the U.S. borrows at very low rates, it nevertheless must pay interest on its debt, and it is that interest that represents a burden on future growth. What happens is that future tax receipts must be used to pay interest and principle on