Macroeconomic Policy

As you have learned in the last chapters, policymakers have important decisions to make about whether and how to take actions designed to change conditions in the macroeconomy. This is not an easy task! There are many considerations – Is the economy doing well on its own? If not, would policy help? What kind of policy – monetary, fiscal, both? Is the economy in an expansion or a recession? Should we engage in expansionary policy or contractionary policy? What particular type of action should we take? If monetary, do we buy bonds or sell bonds? If fiscal – should we change taxes or government spending? And should the change be an increase or a decrease? For all policy actions, remember how important timing is to taking the appropriate action in a way that will accomplish the intended outcome (to the extent that policymakers can influence it).

Take a few moments to look at this video review of macroeconomic policy hosted by your friend, and mine, Mr. Clifford. Take the time to test yourself before you take on this last discussion assignment. (Remember that the AS curve that Mr. Clifford refers to shifting as the economy self-corrects is the SRAS. With no policy, the automatic adjustment mechanism is the factor at work in the economy.)

Fiscal and Monetary Policy Review Link:

So now, since you’ve learned a bit about policy, and the difficulties associated with its implementation, your task for this discussion is perhaps the most challenging one.

In your initial post, you are to write to either the President (on fiscal policy) or to the Chair of the Federal Reserve (on monetary policy) describing a specific policy action that you believe should be taken at this moment in time (e.g., lower taxes or buy bonds) and explain why you would take the action (what is currently happening in the economy and what will this action accomplish?). Your thoughtful post (of between 200 – 400 words) is due by Monday November 25 at 5pm. You can learn about the current state of our economy by consulting newspapers or news websites. To make this post, Click “Reply” to these instructions. Remember to include your word count.

Then, read through your classmates’ posts and respond to at least two of them (in no more than 100 words each) by Wednesday November 27 at 5pm. Your responses should be of one of these two types: either carefully explain why you disagree with your classmate’s policy recommendation or carefully explain why you agree with your classmate’s policy recommendation. However, you must respond as the person your classmate wrote to – the President or the Chair of the Federal Reserve (this means you need to sign your responses!). The nature of your agreement/disagreement can be either the policy direction (expansionary or contractionary) or the policy tool (monetary or fiscal). To make these posts, Click “Reply” to your classmate’s post. Remember to include your word counts.

Remember (this is a good time to review) the rules of Netiquette! We will evaluate all of your postings for the required content, as well as spelling and grammar. You must provide word counts for us! This may be easier to do if you prepare your posts using a word processor and then copy the text into this discussion. But don’t worry, we are not going to grade you on whether your policy choice is correct – the point of this discussion is to see how well you can make your case, not whether it is the right move for the economy. As you have learned by now we might not know the answer to the question of whether the policy move is correct because of timing, ideology, etc.!