Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 15, Problem 15.5.4PA
To determine
Why Paul Volcker could not target interest rate.
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Economists sometimes argue that moderate inflation may help the economy by making wages in labor markets more ["", "", ""] . The discussion in the text pointed out that wages tend to be sticky in their downward movements and that unemployment can result. A little inflation could nibble away at ["", ""] wages, and thus help real wages to ["", ""] if necessary. In this way, even if a moderate or high rate of inflation may act as sand in the gears of the economy, perhaps a low rate of inflation serves as oil for the gears of the labor market. This argument is controversial. A full analysis would have to account for all the effects of inflation. It does, however, offer another reason to believe that, all things considered, very low rates of inflation may not be especially harmful.
What Can the Fed Do about Inflation?
In the article by Thomas Hogan, we learn that Russia's invasion of the Ukraine nor the shortage or supply chain issues has not derived the main causes of inflation. (Hogan, 2022) The main cause for the issues that we have been facing come directly from the constant price changes and the monetary policy that is currently in place.
We learn that with Federal Open Market Committee (FOMC) has not adjusted their monetary policy, and have been raising the rates in such small increments that is causing the inflation to continue in an upward trend. What needs to occur is the FOMC needs to raise interest rates in greater scales in order the combat the inflation that is taking place and stabilize the price levels that are out there. (Hogan, 2022) What needs occur is that the Fed needs to come up with a policy that will allow for a predetermined path that slows down and regulating the money growth back to a safe place.
Having the guidance from the article…
The Federal Reserve uses an inflation target of 2-3%; most economists agree that the US natural rate of unemployment is around 4.5%.
Imagine that you are a policy analyst observing the government and the Federal Reserve. You determine that inflation is 1% (very low) and unemployment is hovering around 6.5% (quite high.)
The Federal Reserve responds by cutting interest rates and beginning to buy government bonds in open-market operations.
The government takes the position that the only way out of a recession is to decrease government spending and passes a budget with very little spending (this is called "taking austerity measures").
What effects would the Fed's actions have, if taken alone? What effects would the government's actions have, if taken alone? What do you predict will occur when both actions are taken? Who do you think is making the right suggestion?
Chapter 15 Solutions
Macroeconomics (7th Edition)
Ch. 15 - Prob. 15.1.1RQCh. 15 - Prob. 15.1.2RQCh. 15 - Prob. 15.1.3RQCh. 15 - Prob. 15.1.4PACh. 15 - Prob. 15.1.5PACh. 15 - Prob. 15.1.6PACh. 15 - Prob. 15.1.7PACh. 15 - Prob. 15.2.1RQCh. 15 - Prob. 15.2.2RQCh. 15 - Prob. 15.2.3RQ
Ch. 15 - Prob. 15.2.4RQCh. 15 - Prob. 15.2.5RQCh. 15 - Prob. 15.2.6PACh. 15 - Prob. 15.2.7PACh. 15 - Prob. 15.2.8PACh. 15 - Prob. 15.2.9PACh. 15 - Prob. 15.2.10PACh. 15 - Prob. 15.3.1RQCh. 15 - Prob. 15.3.2RQCh. 15 - Prob. 15.3.3RQCh. 15 - Prob. 15.3.4PACh. 15 - Prob. 15.3.5PACh. 15 - Prob. 15.3.6PACh. 15 - Prob. 15.3.7PACh. 15 - Prob. 15.3.11PACh. 15 - Prob. 15.3.12PACh. 15 - Prob. 15.3.13PACh. 15 - Prob. 15.3.14PACh. 15 - Prob. 15.3.15PACh. 15 - Prob. 15.4.1RQCh. 15 - Prob. 15.4.2RQCh. 15 - Prob. 15.4.3PACh. 15 - Prob. 15.4.4PACh. 15 - Prob. 15.4.5PACh. 15 - Prob. 15.4.6PACh. 15 - Prob. 15.5.1RQCh. 15 - Prob. 15.5.2RQCh. 15 - Prob. 15.5.3RQCh. 15 - Prob. 15.5.4PACh. 15 - Prob. 15.5.5PACh. 15 - Prob. 15.5.6PACh. 15 - Prob. 15.5.7PACh. 15 - Prob. 15.5.8PACh. 15 - Prob. 15.5.9PACh. 15 - Prob. 15.6.1RQCh. 15 - Prob. 15.6.2RQCh. 15 - Prob. 15.6.3PACh. 15 - Prob. 15.6.4PACh. 15 - Prob. 15.6.5PACh. 15 - Prob. 15.6.6PACh. 15 - Prob. 15.6.7PACh. 15 - Prob. 15.6.8PACh. 15 - Prob. 15.6.9PACh. 15 - Prob. 15.2RDECh. 15 - Prob. 15.3RDE
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