Macroeconomic Issues and Policy: Fernando & Yvonn Quijano
Macroeconomic Issues and Policy: Fernando & Yvonn Quijano
Macroeconomic Issues and Policy: Fernando & Yvonn Quijano
28
Macroeconomic Issues
and Policy
Prepared by:
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CHAPTER 28: Macroeconomic Issues and Policy
Macroeconomic Issues
and Policy 28
Chapter Outline
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
RECOGNITION LAGS
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
IMPLEMENTATION LAGS
The implementation lag for monetary policy is generally much shorter than for fiscal
policy.
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
RESPONSE LAGS
What is most important is the total lag between the time a problem first occurs and the
time the corrective policies are felt.
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
Neither individuals nor firms revise their spending plans instantaneously. Until they
can make those revisions, extra government spending does not stimulate extra private
spending.
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TIME LAGS REGARDING MONETARY
AND FISCAL POLICY
CHAPTER 28: Macroeconomic Issues and Policy
Summary
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
The first key point is that in practice the Fed chooses the interest rate value and accepts
the money supply consequences, rather than vice versa.
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
The Fed is likely to lower the interest rate (and thus increase the money supply) during
times of low output and low inflation.
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
The Fed is likely to increase the interest rate (and thus decrease the money supply) during
times of high output and high inflation.
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
TABLE 15.1 Data for Selected Variables for the 1989 I–2005 II Period (cont’d.)
REAL GDP AAA SURPLUS
GROWTH UNEMPL. INFL. 3-MONTH BOND AS %
DATE RATE (%) RATE (%) RATE (%) T-BILL RATE RATE OF /GDP
1994 I 4.1 6.6 2.4 3.2 7.2 -3.4
II 5.3 6.2 1.7 4.0 7.9 -2.7
III 2.3 6.0 2.6 4.5 8.2 -3.0
IV 4.8 5.6 1.9 5.3 8.6 -3.0
1995 I 1.1 5.5 2.6 5.8 8.3 -2.9
II 0.7 5.7 1.4 5.6 7.7 -2.7
III 3.3 5.7 1.9 5.4 7.4 -2.7
IV 3.0 5.6 1.9 5.3 7.0 -2.4
1996 I 2.9 5.5 2.4 5.0 7.0 -2.4
II 6.7 5.5 1.6 5.0 7.6 -1.8
III 3.4 5.3 1.3 5.1 7.6 -1.7
IV 4.8 5.3 2.1 5.0 7.2 -1.4
1997 I 3.1 5.2 2.6 5.1 7.4 -1.1
II 6.2 5.0 0.7 5.1 7.6 -0.8
III 5.1 4.9 1.4 5.1 7.2 -0.4
IV 3.0 4.7 1.3 5.1 6.9 -0.4
1998 I 4.5 4.6 1.0 5.1 6.7 0.2
II 2.7 4.4 0.7 5.0 6.6 0.3
III 4.7 4.5 1.5 4.8 6.5 0.7
IV 6.2 4.4 1.4 4.3 6.3 0.6
1999 I 3.4 4.3 1.6 4.4 6.4 0.9
II 3.4 4.2 1.4 4.5 6.9 1.1
III 4.7 4.2 1.4 4.7 7.3 1.2
IV 7.3 4.1 1.7 5.0 7.5 1.3
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
TABLE 15.1 Data for Selected Variables for the 1989 I–2005 II Period (cont’d.)
REAL GDP AAA SURPLUS
GROWTH UNEMPL. INFL. 3-MONTH BOND AS %
DATE RATE (%) RATE (%) RATE (%) T-BILL RATE RATE OF /GDP
2000 I 1.0 4.1 3.6 5.5 7.7 2.2
II 6.4 3.9 1.7 5.7 7.8 1.8
III -0.5 4.0 2.1 6.0 7.6 1.9
IV 2.1 3.9 1.6 6.0 7.4 1.7
2001 I -0.5 4.2 3.3 4.8 7.1 1.6
II 1.2 4.4 3.3 3.7 7.2 1.2
III -1.4 4.8 1.5 3.2 7.1 -0.9
IV 1.6 5.5 2.0 1.9 6.9 0.0
2002 I 2.7 5.7 1.5 1.8 6.6 -2.0
II 2.2 5.8 1.4 1.7 6.7 -2.3
III 2.4 5.7 1.5 1.6 6.3 -2.3
IV 0.2 5.9 2.2 1.3 6.3 -2.8
2003 I 1.7 5.8 3.1 1.2 6.0 -2.8
II 3.7 6.1 1.1 1.0 5.3 -3.4
III 7.2 6.1 1.9 0.9 5.7 -4.1
IV 3.6 5.9 1.8 0.9 5.7 -3.6
2004 I 4.3 5.6 3.7 0.9 5.5 -3.7
II 3.5 5.6 3.9 1.1 5.9 -3.5
III 4.0 5.5 1.3 1.5 5.6 -3.5
IV 3.3 5.4 2.7 2.0 5.5 -3.1
2005 I 3.8 5.3 3.0 2.5 5.3 -2.4
II 3.4 5.1 2.6 2.9 5.1 -2.1
Note: The inflation rate is the percentage change in the GDP price deflator. SURP denotes the federal government surplus (+) or deficit (-).
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MONETARY POLICY
CHAPTER 28: Macroeconomic Issues and Policy
INFLATION TARGETING
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
The deficit tends to rise when GDP falls, and tends to fall when GDP rises.
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
A zero multiplier can come about through renewed optimism on the part of households
and firms or through very aggressive behavior on the part of the Fed, but because
neither of these situations is very plausible, the multiplier is likely to be greater than
zero. Thus, it is likely that to lower the deficit by a certain amount, the cut in government
spending must be larger than that amount.
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY: DEFICIT TARGETING
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY SINCE 1990
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY SINCE 1990
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY SINCE 1990
CHAPTER 28: Macroeconomic Issues and Policy
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FISCAL POLICY SINCE 1990
CHAPTER 28: Macroeconomic Issues and Policy
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REVIEW TERMS AND CONCEPTS
CHAPTER 28: Macroeconomic Issues and Policy
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