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Econ 4.3
Friday, April 9, 1999
Announcements: Homework is due on
Friday. Online quiz will be taken offline on Friday.
Lecture notes:
Chapter 16: Deficit Reduction, Fed Behavior,
Stablization, Stock Market Effects, and Macro Issues Abroad
- Deficit Reduction, Fed Behavior, Stabilization, Stock Market
Effects and Macro Issues abroad
- Attempt by Congress
- Gramm -- Rudman -- Hollings Bill
- 1986 law set out to reduce the deficit by $36 billion
per year with a deficit of zero slated for 1991
Automatic Stabilizers
- Automatic Stablizers are those revenues and expenditure items
in the federal budget that automatically change with the economy in such a
way as to stablize GDP
- Destablizer: Without deficit Targeting (see Figure
16.2 on page 341 in the text)
The Fed's Response to High
Output/High Inflation
- During periods of high output/high inflation, the economy
is on the relatively steep portion of the AS curve. In this case, the Fed
is likely to contract the money supply.
- See Figure 16.4 on page 343 in the text for the graph
Monetary Policy
- Fiscal Policy
- Get rid of deficit by reaching full employment
Policy Issues
- Recognition
- Implementation
- Time lag for effectiveness
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