unit 4: inflation, unemployment, and stabilization...
TRANSCRIPT
Test:
UNIT 4: INFLATION,
UNEMPLOYMENT, AND
STABILIZATION POLICIES
This unit accounts for 20-30% of the
AP Macro Test
Long-Run implications of Fiscal Policy: Deficits and
the Public Debt
Learning Goals:
Why governments
calculate the cyclically
adjusted budget balance
Why a large public debt
may be a cause for
concern
Why implicit liabilities of
the government are also
a cause for concern
DAY 1
What does it mean to have a ‘balanced budget?’
Sgovernment = Taxes – Government Spending – Government Transfers
If this number is positive, we have a surplus and a balanced
budget
If the number is negative, now we have a deficit and a negative
budget balance.
THE BUDGET BALANCE
Budget balancing is dif ficult with Fiscal Policy.
Let’s say the government can decide to either increase its own
spending by $1000 OR increase transfers by $1,000. In both
cases, $1,000 will be added to total government spending
BUT they will have a dif ferent impact on the GDP because the
direct government spending will have a greater impact than
the increase transfer.
BUDGET BALANCE AS A MEASURE OF
FISCAL POLICY
Typically, the budget deficit goes up when unemployment goes up, and down when unemployment is down.
Why? Not necessarily because of fiscal pol icy. More of ten, i t is a result of automatic stabil izers (progressive taxes, unemployment, food stamps, etc.)
In order to combat these and figurer out what the balance would be if there was neither a recessionary or an inflationary gap, we can calculate a cyclically adjusted budget balance .
The cyclically adjusted budget takes into account the extra tax revenue that the government would col lect and the transfers i t would save if a recessionary gap were el iminated – or the revenue the government would lose and the extra transfers i t would make if an inflationary gap were el iminated.
I f even af ter a cyclically adjust budget is run and we sti l l have a negative balance…now that might be a ‘bad’ thing.
BUSINESS CYCLE AND THE CYCLICALLY
ADJUSTED BUDGET BALANCE
Most economists believe we
should NOT have a requirement
to balance the budget every
year.
They do believe however that
the budget should be balanced
over all…so maybe not year to
year, but generally speaking,
the government should save
during good times so that it
can spend during the bad.
SHOULD THE BUDGET BE BALANCED?
A short term deficit can be paid off
if the government has some money
in savings. However, if the
government doesn’t have money to
pay, than the deficit becomes debt.
Is today’s debt a big deal??
http://www.usdebtclock.org/
LONG-RUN IMPLICATIONS OF FISCAL
POLICY
Try not to think about
what commentators
think about the
budget…let’s look at
what an economist
might think…
Two reasons to be concerned when a government runs a persistent budget deficit:
1. When the government borrows funds in the financial markets, it is competing with firms that plan to borrow funds for investment spending. As a result, the government’s borrowing may “crowd out” private investment spending, increasing interest rates and reducing the economy’s long -run rate of growth.
2. Today‘s deficits, by increasing the government’s debt, place financial pressure on future budgets. Interest must be paid in the future, and this can take dollars away from other future obligations like education, the military, space exploration, etc.
PROBLEMS POSED BY RISING
GOVERNMENT DEBT
Borrowing to pay off your debt isn’t really an option. That’s
l ike getting a new credit card to pay off the old credit card.
Eventually, that is the road to bankruptcy. Nations have
essentially declared bankruptcy in the past…its not pretty.
(aka Greece)
Increase taxes or cut spending. Probably the best solution,
but it isn’t very politically successful, especially when a
nation has become accustomed to low taxes (like the US has
vs. historical rates today)
Printing money. Basically this means that the FED creates
new money to pay the debts of the Treasury. This may fix debt
problem, but can make money essentially worthless and can
lead to inflation or hyper inflation.
HOW TO PAY OFF GOVERNMENT DEBT
To assess the ability of government to pay their debt, we often
use the debt-GDP ratio.
We use this measure rather than just looking at debt because
GDP is a good indicator of the potential taxes the government
can collect. If the government’s debt grows more slowly than
GDP, the burden of paying the debt is actually falling
compared with the government’s potential tax revenue.
DEFICITS AND DEBT IN PRACTICE
Implicit l iabilities are spending promises made by
governments that are effectively a debt despite the fact that
they are not included in the usual debt statistics.
In the US, we promise to honor Social Security, Medicare and
Medicaid amount to 40% of federal spending…potentially a
big deal and population ages and gets larger.
IMPLICIT LIABILITIES
The nation of Foxlandia has a closed economy. Given the
information below, calculate the level of investment spending,
private savings, and the budget balance. There are no
government transfers.
PRACTICE PROBLEMS
GDP = $1500 Million
C = $1000 Million
G = $400 Million
T = $300 Million
Monetary Policy and the Interest Rate
Learning Goals:
How the Federal
Reserve implements
monetary policy,
moving the interest rate
to affect aggregate
output.
Why monetary policy is
an important tool for
stabilizing the economy
DAY 2
The Federal Reserve is the central bank of the united states.
A central bank is an institution that oversees and regulates the banking system, and controls the money base. Other central banks include the Bank of England, the Bank of Japan, and the European Central Bank, or ECB.
Fed was created in 1913 by President Wilson in responses to an economic Panic of 1907. During that panic, JP Morgan had to literally save the US banking system, and the US wanted to stabilize itself and create a central bank, which Congress then did.
The Fed isn’t really a government entity, but its not entirely public either. It is made up of a Board of Governors in DC and has 12 member banks around the US.
WHAT IS THE FEDERAL RESERVE?
They oversee the entire system from the offices in DC
7 members are appointment by the President and approved by
Senate; serve 14 year terms (chairman is appointed every 4
years).
THE FED – BOARD OF GOVERNORS
Current chair Janet
Yellen and 4 members of
the board.
Allen
Greenspan
served as
chair from
1987-
2006.
JANET YELLEN MET WITH A SENATE COMMITTEE
LAST WEEK…SHE DOESN’T QUITE UNDERSTAND
YOU YET…
http://www.cnn.com/2015/02/24/politics/j
anet-yellen-capitol-hill-preview/
Provide various banking and supervisory service. For
example: audit the books of private sector banks to ensure
financial health. Each regional bank is run by a board of
directors chosen by the local business community. New York’s
carries out open market operations (deciding when to buy and
sell bonds)
FEDERAL RESERVE – 12 DISTRICT
BANKS
KC Fed head Esther George
The Federal Reserve can literally increase the amount of
money that exists in the United States. This is usually the
result of what is called an ‘open market operation’
The increase in the money supply causes short -term interest
rates to fall in the money market.
MONETARY POLICY AND THE INTEREST
RATE
Would this be an
expansionary or
contractionary policy?
Typically, the Federal reserve has a targets a specific federal
funds rate
The federal funds rate is the interest rate at which the FED
can lend money to other institutions (like the US government,
Bank of America, etc.)
If the current federal funds rate is higher than the target, the FED will
increase the money supply so that the rate falls to the target
If the current federal funds rate is lower than the target, the FED will
decrease the money supply so that the rate rises to the target.
FEDERAL FUNDS TARGET
Monetary policy is a central bank’s use of changes in the
quantity of money or the interest rate to stabilize the
economy. In the United States, our central bank is the Federal
Reserve Bank.
SO WHAT IS MONETARY POLICY?
We have seen how Fiscal policy can be used to stabilize the
economy. Now we will see how monetary policy can play the
same role.
Investment spending is usually very sensitive to changes in
the interest rate. When interest rates fall, we see an increase
in investment spending. Some types of consumption spending
also increase when the interest rate falls. Eg: car buying,
college educations, real estate, etc.
Since both investment spending and consumption spending
are important components of aggregate demand, it would
therefore make sense that when the interest rate falls, AD
should rise.
MONETARY POLICY AND AGGREGATE
DEMAND
Expansionary monetary policy chain of events
1. The Fed observes that the economy is in a recessionary gap
2. The Fed increases the money supply
3. The interest rate falls
4. Investment and consumption increase
5. AD shifts to the right
6. Real GDP increases, unemployment rate decreases, the aggregate price level rises
Contractionary monetary policy chain of events
1. The Fed observes that the economy is in an inflationary gap.
2. The fed decreases the money supply
3. The interest rate rises
4. Investment and consumption decrease
5. AD shifts to the left
6. Real GDP decreases, unemployment rate increases, the aggregate price level falls
EXPANSIONARY AND CONTRACTIONARY
MONETARY POLICY
More
on
how
they
do
this
later
1. Open market operations (buying and selling bonds)
2. Control of the interest rate
3. Control of the reserve ratio
How could each of these ‘make’
money?
MONETARY TOOLS OF THE FEDERAL
RESERVE (WE WILL TAKE A WHILE TO WORK THROUGH THESE)
Suppose the economy is currently suffering from a very high
rate of inflation caused by aggregate demand that has
increased beyond potential GDP.
a. In a correctly labeled graph, show equilibrium in the money market.
b. In a correctly labeled AD/AS graph, show the current short -run
equilibrium in the macroeconomy
c. In response to this high inflation rate, should the Fed engaged in
expansionary or contractionary fiscal policy?
d. In your graph from part a show the impact of this monetary policy in
the money market and on the equilibrium interest rate.
e. In your graph from part b show the impact of this monetary policy on
real GDP and the price level.
PRACTICE PROBLEM
Packets not back from printshop…sorry.
Watch the monetary policy and interest rate video (7 min
Khan academy) and make sure you understand this stuff. Just
write down any questions so we can answer them in class on
Thursday.
LEARNING PREP #1 FOR THURS
Money, Output, and Prices in the Long Run
Learning Goals:
The effect of
inappropriate monetary
policy
The concept of
monetary neutrality and
its relationship to the
long-term economic
effects of monetary
policy
DAY 3
The Federal Reserve can use its monetary policy tools to
change the money supply and cause equilibrium interest rates
in the money market to increase or decrease. But what if a
central bank pursues a monetary policy that is not
appropriate?
Could a counter-productive action by a central bank actually
destabilize an economy in the short run?
Also, what are the long run effects of monetary policy?
MONEY, OUTPUT, AND PRICES
There are t imes when the central bank can engage in monetary pol icy that is actually counter productive. In other words, the pol icy might move the economy AWAY from the potential GDP rather than closer to the potential GDP.
Suppose the economy is currently in LR equil ibrium. If the Fed were to conduct expansionary
monetary policy, the interest rate would fall.
A lower interest rate would shift AD to the right.
In the short run, real GDP would increase, but so would price level.
Eventually, nominal wages would rise in labor markets, shifting SRAS to the left.
Long-run equilibrium would be established back at potential GDP and a higher price level.
So in the long run, expansionary monetary policy doesn’t increase real GDP, it only causes inflation.
SHORT-RUN AND LONG-RUN EFFECTS OF
AN INCREASE IN THE MONEY SUPPLY
Money neutrality – changes in the money supply have no real effects on the economy. In the long run, the only effect of an increase in the money supply is to raise the aggregate price level by an equal percentage. Economists argue that money is neutral in the long run.
In other words – no matter what monetary policy the Fed uses, it can only change things in the short run. Markets are self -correcting in the long run.
How does money neutrality work?
Suppose all prices in the economy – prices of final goods and services and also factor prices, such as nominal wages, double
And supply the money supply doubles at the same time
What difference does this make to the economy in real terms? None!
All real variables in the economy – such as real GDP and the real value of the money supply (the amount of goods/services it can buy) are unchanged.
So, there is no reason for anyone to behave any differently.
MONEY NEUTRALITY
In the short run, we have seen that an increase in the Money Supply causes short-term interest rates to fall . But what happens in the long run?
Suppose the money market equilibrium is at an interest rate of i*% Suppose MS increases by 10% to M’.
The short run interest rate falls.
Money neutrality says that in the long run, aggregate price level rises by 10%
When aggregate prices rise by 10%, households will increase their demand for money by 10%
When both MS and MD shift to the right by 10%, the long run equilibrium interest rate returns to i*%
CHANGES IN THE MONEY SUPPLY AND
THE INTEREST RATE IN THE LONG RUN
1
a. Draw a correctly labeled graph of aggregate demand and
supply showing an economy in long run equilibrium
b. Draw a correctly labeled graph of equilibrium in the money
market
c. On your graph in part b, show what happens to the
macroeconomy in the short run if the central bank
decreases the money supply
d. On your graph in part a, show what happens to the
macroeconomy in the short run if the central bank
decreases the money supply
e. On both graphs, show what will happen in the long run.
Explain these adjustments
PRACTICE PROBLEM
Types of Inflation, Disinflation, and Deflation
LG’s
The classical model of
the price level
Why efforts to collect an
inflation tax by printing
money can lead to high
rates of inflation and
hyperinflation
The types of inflation:
cost push and demand
pull
DAY 4
http://www.pbs.org/newshour/bb/business-
jan-june09-solman_03-17/
NOT all inflation is created equal. Crazy inflation, like in
Zimbabwe, is associated with rapid increases in the money
supply. Moderate inflation, like here in the US, has a very
dif ferent cause.
MONEY AND INFLATION
As a result of change in the
nominal money supply, leads in
the long run to a change in the
aggregate price level, and that
leaves the real quantity of
money at its original level (both
increase at the same rate)
Problem: the jump from the first
Long Run equilibrium to the
second is not that fast…in large
part because of sticky wages
This model may be true if there
is a lot of inflation, but not as
true during periods of low
inflation
THE CLASSICAL MODEL OF MONEY AND
PRICES
In conservative media, you often hear about the government
‘printing money’ to pay for large budget deficits.
In reality: remember, the Fed issues money, the Treasury
actually prints it.
INFLATION TAX
Fed creates money and
uses it to buy bonds from
private sector
Treasury pays interest on debt
owned by the federal
reserve…but the federal
reserve is required by law to
give any profits to the
treasury…so essentially, the
treasury pays itself.
Many see this as dangerous because more money just
leads to inflation….and it takes the market a while to
adjust to wage increases, so in the short run, goods are
just more expensive.
This process is
called seignorage
People who currently hold money – because it is worth less,
inflation erodes your money’s purchasing power.
This concept is known as an inflation tax. It isn’t actually a
government tax, it is the idea that the government, through its
own monetary policies, can make your money worth less.
WHO PAYS FOR INFLATION?
Let’s say a city wants to increase its revenue so they add a fee
(tax) to all cab fares. People who don’t want to pay it switch
to substitutes (walk, bus, etc). In order to cover the growing
deficit, the city makes the fee on cab fares even HIGHER and
as they do even more people switch to substitutes. No one
wins.
LOGIC OF HYPERINFLATION
This is basically what happens with
hyperinflation. The government prints
more money to cover its debt. But then
prices go up (or currency goes down) by
that same percentage. There is a cycle
of the government trying to cover its
own debt, but as the value of money
depreciates for people, it prints more
money, and so on and so on.
Cost push inflation is caused by a decrease in SRAS.
This is usually caused by an economy -wide increase in the
price of resources.
COST PUSH INFLATION
Demand pull inflation is caused by an increase in Aggregate
Demand.
This is likely to be caused by economic growth that is coupled
with either expansionary fiscal or monetary policy.
DEMAND PULL INFLATION
DISINFLATION VS DEFLATION
Disinflation is a slowing in the rate of increase in the general price level, as
represented by the average price of goods and services in the consumer
basket. For instance, between 1981 and 1983, the annual rate of increase
in the Canadian total Consumer Price Index (CPI) declined from 12.5 per
cent to just under 6 per cent. Again, from 1990 to 1992, the rate of
inflation slowed from about 5 per cent to 1.5 per cent. This is disinflation.
Deflation, on the other hand, refers to a persistent fall in the level of the
total CPI, with negative inflation being recorded year after year. The one
major episode of sustained deflation in Canada was during the Great
Depression of the 1930s, when the overall level of prices fell by more than
20 per cent over a four year period.
Day 5
Learning Goals:
What the Phil l ips curve is and the nature of the shor t -run trade-of f between inflation and unemployment
Why there is no long-run trade of f between inflation and unemployment
Why expansionary pol icies are l imited due to the ef fects of expected inflation
Why even moderate levels of inflation can be hard to reduce
Why deflation is a problem for economic pol icy and leads policy makers to prefer a low but posit ive inflation rate
INFLATION AND UNEMPLOYMENT: THE
PHILLIPS CURVE
Shows tradeoff between inflation
and unemployment. What happens to inflation and unemployment when AD
increase?
THE PHILLIPS CURVE
Inflation
52
SRPC
Short Run Phillips Curve
Unemployment 2% 9%
1%
5%
When the economy is overheating, there is low unemployment but high inflation
When there is a recession, unemployment is high but
inflation is low
Inflation
53
SRPC
Short Run Phillips Curve
Unemployment 2% 9%
1%
5%
What happens when AS falls causing stagflation? Increase in unemployment and inflation
SRPC1
Inflation
54
SRPC
Short Run vs. Long Run
Unemployment 2% 9%
1%
5%
What happens when AD increases?
SRPC1
3%
5%
Long Run Phillips Curve
In the long run, wages
and resource prices
increase. AS falls.
SRPC shifts right.
What happens in the long run?
Inflation
55
Short Run vs. Long Run
Unemployment 2% 9%
1%
5%
3%
5%
Long Run Phillips Curve
In the long run there is no tradeoff between inflation
and unemployment
The LRPC is vertical at
the Natural Rate of
Unemployment
Inflation
56
SRPC
Short Run vs. Long Run
Unemployment 2% 9%
1%
5%
What happens when AD falls?
SRPC1
3%
5%
Long Run
Phillips Curve
In the long run wages
fall and there is no
tradeoff between
inflation and
unemployment
What happens in the long run?
Price
Level
58
AD
AS
AD/AS and the Phillips Curve
GDPR QY
PLe
LRAS Inflation
SRPC
Unemployment
UY
LRPC
Show what happens on both graphs if AD increase
AD1
Price
Level
59
AD
AS
AD/AS and the Phillips Curve
GDPR QY
PLe
LRAS Inflation
SRPC
Unemployment
UY
LRPC
Correctly draw the LRPC and SRPC with the recessionary gap. What happens when AD falls?
AD1
Price
Level
60
AD
AS
AD/AS and the Phillips Curve
GDPR QY
PLe
LRAS Inflation
SRPC
Unemployment
UY
LRPC
Correctly draw the LRPC and SRPC at full employment. What happens when AS falls?
AS1
SRPC1
Price
Level
61
AD
AS
AD/AS and the Phillips Curve
GDPR QY
PLe
LRAS Inflation
SRPC
Unemployment
UY
LRPC
Correctly draw the LRPC and SRPC with an recessionary gap. What happens when AS goes up?
AS1
SRPC1
Price Level
62
SRAS
GDPR QY
LRAS Inflation
SRPC
Unemployment UY
LRPC
You need to be able to ‘see’ how this works. Remember, memorizing isn’t the
key, it is understanding how it works so you can reproduce it on your own.
USE THE FOLLOWING MODELS TO SHOW
FULL EMPLOYMENT, A RECESSIONARY
GAP, AND AN INFLATIONARY GAP.
1. PPC
2. Business Cycle
3. AD/AS
4. Phillips Curve
67
THE GOOD, THE BAD, AND THE UGLY
Unemployment
Inflation
GDP Growth
Good
6% or less
1%-4%
2.5%-5%
Worry
6.5%-8%
5%-8%
1%-2%
Bad
8.5 % or more
9% or more
.5% or less
68
Complete Activities 5-8 and 5-9 (lots of pages) in your activity
packet.
We sort of skipped the idea of ‘crowding out’ – go back and
look at it (activity 5 -7). For your learning prep for Wednesday.
ACTIVITY PACKET
https://www.youtube.com/watch?v=zatnIhw
mu1c
Day 6
See Keynes articles
Learning Goals
Why classical economics wasn’t adequate for the problems posed by the Great Depression
How Keynes and the experience of the Great Depression legitimized macroeconomic pol icy activism what monetarism is and its views about the l imits of discretionary monetary pol icy
How challenges led to a revision of Keynesian ideas and the emergence of the new classical macroeconomics.
HISTORY AND ALTERNATE VIEWS OF
MACROECONOMICS
Prior to the Great Depression, economists didn’t really focus
on the state of the economy in the Short run, only the long
run…they thought the short run was sort of insignificant to
overall output
There was no consensus on the business cycle…what it meant,
how it worked. They did assume a downturn in the economy
was temporary, but didn’t encourage policies to mitigate
them.
Great Depression led many to rethink this model.
CLASSICAL VIEWS OF MACROECONOMCS
The General Theory of Unemployment, Interest, and Money
Said short run shifts in aggregate demand do affect aggregate
output and price level!! Short -run shifts are important!!
Said the AD curve can shift because of many factors (like
confidence of businesses) and that they move the business
cycle.
JOHN MAYNARD KEYNES
Because of what Keynes said, we often see governments
actively working to fight recessions and help use fiscal and
monetary policy to smooth out business cycle
Today there is a very broad consensus on how to use these
policies to help stabilize the economy…the debate comes in at
which ones should be used when (think Obama and auto/bank
‘bailouts’
KEYNES WORK AND ECONOMY POLICIES
During Great Depression – really only fiscal policy (actions by
Congress/President) was used.
Post WWII we start to see a rise in monetary policy (role of
the FED and the creation of money)
Milton Friedman and Anna Schwartz (1963) publish A
Monetary History of the United States showing how supply of
money can also impact the business cycle – this encouraged
more economists to support monetary policy
MONETARY POLICY POST WWII
Milton Friedman led a movement that sought to eliminate
macroeconomic policy activism while maintaining the
importance of monetary policy
Monetarism asserted that GDP will grow steadily if the money
supply grows steadily
Said that the Fed should have a bank target for a rate of
constant growth of money supply (3% per year) no matter
what fluctuations were in the economy
But this constant rate of growth may cause government
spending to ‘crowd -out’ investment spending
https://www.youtube.com/watch?v=RGlt0nEQdRI
MONETARISM
Researchers have also found a statistical correlation between
upcoming political elections and expansionary fiscal policy
In months leading up to elections, government either cuts
taxes or announces new spending programs. These policies
put more money in pockets of voters and also tend to lower
the unemployment rate. The eventual cost is inflation, but by
then the election is over and inflation is often addressed at a
later date…
POLITICAL BUSINESS CYCLE
2016
In the 70s, 80s, and 90s, more economists used the idea of
‘rational expectations’ – this is the idea that individuals and
firms make optimal decisions using all available information
According to the original version of the natural rate
hypothesis, a government attempt to trade off higher inflation
for lower unemployment would work in the short run but
would eventually fail because higher inflation would get built
into expectations…
Today we say…public gets this…and public wouldn’t wait to
change their expectations…those would change almost
immediately
This is New Keynesian ideas. They take into account price
stickiness.
UPDATES TO EARLY ECONOMIC IDEAS
--------------------
Learning Goals:
The elements of
modern consensus
The main remaining
disputes
MODERN ECONOMIC CONSENSUS
Today…we say that YES it is beneficial…
The only time it is not is when there is a ‘l iquidity trap’ (this is
when injections of cash into the private banking system by a
central bank fail to decrease interest rates and hence make
monetary policy ineffective . But this usually doesn’t happen.
IS EXPANSIONARY MONETARY POLICY
HELPFUL IN FIGHTING RECESSIONS?
Generally, everybody believes YES
They also all seem to agree that balancing the budget isn’t
always a good thing…sometimes the government would need
to spend more depending on the state of the economy…and
then the government should save up when the economy is
doing well.
IS EXPANSIONARY FISCAL POLICY
EFFECTIVE IN FIGHTING RECESSIONS?
Today, almost all macroeconomists now say that there is a
natural rate of unemployment and agree that there are some
limits of fiscal and monetary policies.
They believe that effective monetary and fiscal policy can
l imit the size of fluctuations of the actual unemployment rate
around the natural rate, but can’t keep unemployment below
the natural rate
CAN MONETARY AND/OR FISCAL POLICY
REDUCE UNEMPLOYMENT IN THE LONG
RUN?
Today pretty much everyone agrees that tax cuts and/or
spending can be at least somewhat effective in increasing
aggregate demand
Many (but not all) agree that discretionary fiscal policy is
usually counterproductive: the lags in adjusting fiscal policy
mean that, all too often, policies intended to figh a slump
end up intensifying a boom
As a result, the macroeconomic consensus gives monetary
policy the lead role in economic stabilization. Discretionary
fiscal policy plays the leading role only in special
circumstances when monetary policy is ineffective, (maybe if
there is a liquidity gap)
SHOULD FISCAL POLICY BE USED IN A
DISCRETIONARY WAY?
In the US, the FED doesn’t announce an inflation rate target,
but most people believe their goal is to try and stay at about
2% per year
CENTRAL BANK TARGETS
Should the Fed be pro-actively be influencing the stock
market, real estate market, or any other asset market?
Jury is still out…some people don’t want the Fed to intervene
in these markets, but if the bubble bursts (housing in 2008),
the damage is often really painful so maybe they should???
ASSET PRICES
Desperate times call for desperate measures…in 2008, Fed
took actions that it doesn’t normally…so often times in
extreme cases, people are ok with them being overly involved.
UNCONVENTIONAL MONETARY POLICIES
https://www.youtube.com/watch?v=HGjtcPssfCs
You probably won’t be asked to ‘draw’ this like he says (unless
an FRQ specifically asks for a Keynesian/classical model) but
you will be asked to recognize it on the multiple choice.
MODERN CONSENSUS
STUDY
See practice questions
See videos online for help
Try to complete your entire packet
MC and FRQ test on Thursday!
TO DO