Week 9 Notes
Week 9 Notes Econ 322
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This 2 page Class Notes was uploaded by Tulsi on Thursday March 17, 2016. The Class Notes belongs to Econ 322 at University of South Carolina taught by Hauk in Spring 2016. Since its upload, it has received 15 views. For similar materials see Intermediate Macroeconomics in Economcs at University of South Carolina.
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Date Created: 03/17/16
Week 9 Notes After Spring Break Tuesday March 15 PM LRAS SRAS YV a PE P PA SRAS 1 l l P EP ampY Y EP expected price opeJJd AD gt y Y Phillips Curve Okun39s Law short run tradeoff between inflation and unemployment negative relationship between unemployment 131E rliilii39 ii y ill at and GDP itith twicwia ltE gtJt Eh aY fv lt5EE 1 7tinflation 5W Y Bu UNl u unemployment rate uN natural unemployment rate v supply shock 7 E7t P A a quot l l UN u TYPES 0f In ation Misery Index inflation rate unemployment rate Demand PU Sacrifice ratio Aunemployment Au Supply Push Ainflation An 31716 Economic Stabilization 1 Should macroeconomic policy be active or passive 2 Should macroeconomic policy be conducted by rule or by discretion New Section 2 Page 1 1 Should macroeconomic policy be active or passive 2 Should macroeconomic policy be conducted by rule or by discretion Active policy policies that fluctuate over the course of the business cycle with the aim of stabilizing the economy use expansionary policy during recession and contractionary policy during expansion Passive policy policy does not change over the course of the business cycle pick a policy that works well on average and stay with it The Case for Passive Policy 1 Policy lags Inside lag time that passes between a shock hitting the economy and the policy action that responds to the shock big issue for fiscal policy Outside lag time that passes between a policy decision and the effects of that policy being felt in the broader economy big issue for monetary policy takes 1218 months before economy is impacted The tax code is an example of an automatic stabilizer 2 The Difficult Job of economic forecasting Leading economic indicators Macroeconometric models New Section 2 Page 2
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