Consider some of the macroeconomic debates of this module. Most of the debates revolve around the complications that can arise with “counter-cyclical” economic policies which try to moderate the fluctuations of the business cycle. While there is certainly much value in reducing unemployment and waste of resources during a recession, it can be argued that this would almost certainly increase the budget deficit and national debt if an expansionary fiscal policy was employed. On the other hand, if expansionary monetary policy was utilized, a long-run concern could be an increase in inflation.
For this last assignment, you are asked to consider earlier discussions and debates and to summarize your findings.
Part 1:
Take a position and discuss your thoughts on whether or not active fiscal and/or monetary policy should be employed regularly to “fine-tune” the economy and avoid business cycle fluctuations. First, do you think this is a wise idea, or even possible? Next, how concerned are you about the level of U.S. national debt? Be sure to give economic rationale to support your view. Next, weigh in on your opinion of the Federal Reserve and active monetary policy. Try exploring the website of the Federal Reserve (federalreserve.gov) to see what their current goals are for inflation and monetary policy, and whether or not you agree.
Part 2:
Review the monetary and fiscal policies which were employed to counter the Great Recession of 2007-2009. For fiscal policy, see if you can find the full name of the stimulus package of 2009, and explain its key components. For monetary policy, what interest rate target was the Federal Reserve using in an attempt to end the recession?
Do you think these policies were effective? What was the result of the fiscal policy, including the effect it had on the deficit and national debt? Do you think this recession illustrated the limits of monetary policy? Why or why not?
Do you think monetary policy should follow a “rule”? Do you think automatic stabilizers should be relied upon rather than active fiscal policy?
How would you describe the current economic situation in the U.S., and what policies would you recommend? Explain your answers and opinions.
Please address all questions thoroughly
