NOTES (3/20/15) - Policy Summary: Countercyclical Options
Expansionary Policy (Recession)
- "full employment" economy will have:
- 1. annual unemployment rate of 4-5%
- 2. annual inflation rate of 2-3%
- if economy goes into recession:
- 3. real GDP will decrease for at least six months
- 4. unemployment rate will go to at least 6% or more
- 5. inflation rate will go to 2% or less
- if Congress enacts Keynesian Fiscal Policies to slow/stop recession:
- 6. policy will try to improve C or G (parts of AD)
- 7. Congress will cut federal taxes
- 8. Congress will increase job and spending programs
- 9. federal budget will probably create a deficit
- 10. due to changes in Money Demand, interest rate will increase
- if Federal Reserve employs Monetary Fiscal Policy to slow/stop recession:
- 11. policy will target improvement in Ig (part of AD)
- 12. Fed will target a lower federal fund rate
- 13. Fed can lower the discount rate
- 14. Fed can buy bonds (OMO)
- 15.Fed can (theoretically) lower reserve requirement
- 16.Fed policies will lower the interest rates through changes in the Money Supply
- 17. these options increase Ig
- if economy suffers from too much demand-pull inflation, then:
- 18. unemployment rate will go to 4% or less
- 19. inflation rate will go to 4% or more
- if Congress enacts Keynesian Fiscal Policies to slow/stop recession:
- 20. policy will try to decrease C or G (parts of AD)
- 21. Congress will raise federal raise taxes
- 22. Congress will decrease job and spending programs
- 23. federal budget will probably create a surplus
- 24. due to changes in Money Demand, interest rates will decrease
- if Federal Reserve employs Monetary Fiscal Policy to slow/stop recession:
- 25. policy will target decreases in Ig (part of AD)
- 26. Fed will target a increase federal fund rate
- 27. Fed can increase the discount rate
- 28. Fed can sell bonds (OMO)
- 29.Fed can (theoretically) raise reserve requirement
- 30.Fed policies will increase the interest rates through changes in the Money Supply
- 31. these options decrease Ig
The notes seem a bit messy and disorganized, however they still have the ability to be understood. I believe that you went over the notes in a very general manner that even the most simplest of students can follow the concept. Also, adding pictures will help further explain everything!
ReplyDeletesomething i'd like to add to your blog, since it's very vague, is that :
ReplyDeleteOMO stands for Open Market Operation, which means to buy or sell securities or bonds
In an expansionary policy, you would buy more bonds to increase the money supply
whereas in a contractionary policy, you would sell the bonds to lower the money supply.
hope this helps :')