Macro Final Study 5 9 Assignment 14 1 Accommodative Monetary Policy SR When Fed attempts to expand money supply to boost the economy when growth is slow What Lower interest rate money less expensive to borrow Easy monetary policy 2 Crowding out effect SR Public sector spending replaces or drives down private sector spending e g Medicare reduces the availability of private health care 3 Automatic stabilizers SR Econ policies and programs aim at offset fluctuations in a nation s econ activity without gov intervention e g Corporate and personal taxes transfer system 4 Credit crunch SR 5 Zero lower bound SR Hard to get a loan Interest rate is about 0 6 Tight monetary policy SR Fed raises short term interest rate constrict spending or to curb inflation 7 constant money growth rule K percent rule LR Friedman To control inflation over LR the best way is to have Fed grows the money supply by a set amount k variable each year K variable the growth of real GDP each year 8 Taylor rule how Fed should change nominal interest rate in response to inflation output etc 9 Ricardian equivalence G doesn t change C and AD 10 NAIRU Non Accelerating Inflation Rate of Unemployment 11 Philips curve The stable and inverse relationship between inflation and unemployment The lower the unemployment rate the more rapidly wages paid to labor increase 12 Structural deficit permanent VS Cyclical deficit temporary 13 Classical Says Law Supply creates its own demand 14 Classical Loanable funds theory real interest rate determined by saving and investment Nominal interest rate real interest rate expected inflation 15 Classical Quantity theory of money HW 14 1 Counter cyclical policy Keynesian gov spending during downturns tighten credits during inflationary periods 2 Monetarist One who believe in money policy By controlling money policy one can control the inflation rate Most famous Milton Friedman Alan Greenspan What the Fed should institute a prescribed rate of growth in the money supply 3 Stagflation Slow economic growth high unemployment and inflation 4 Nominal GDP vs Real GDP
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