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Chapter 17: Macroeconomics: Events and Ideas

Pages: 605 - 637

6 Questions for Chapter 17: Macroeconomics: Events and Ideas

  1. In their famous book A Monetary History of the United States, the economists Milton Friedman and Anna Schwartz argued that the Federal Reserve was responsible for the Great Depression because it failed to pursue a sufficiently expansionary monetary policy. Why would a classical economist have thought that action by the Federal Reserve would not have made a difference in the length or depth of the Great Depression?

    Found on Page 612
  2. What are the limits of macroeconomic policy activism?

    Found on Page 620
  3. In a press release during the Great Recession, the National Federation of Independent Business, which calculates the Small Business Optimism Index, stated "The Small Business Optimism Index rose just 0.1 points in January… . Historically, optimism remains at recession levels. While small business owners appeared less pessimistic about the outlook for business conditions and real sales growth, that optimism did not materialize in hiring or increased inventories plans." Would this statement seem familiar to a Keynesian economist? Which conclusion would a Keynesian economist draw for the need for public policy?

    Found on Page 612
  4. Starting in 2008, as the economy entered the Great Recession, unemployment soared while interest rates and investment spending fell sharply. The Fed accelerated the growth of M1 in response.

    Found on Page 620
  5. In late 2008, as it became clear that the United States was experiencing a recession, the Fed reduced its target for the federal funds rate to near zero, as part of a larger aggressively expansionary monetary policy stance (including what the Fed called quantitative easing). Most observers agreed that the Fed’s aggressive monetary expansion helped reduce the length and severity of the Great Recession.

    Found on Page 620
  6. Why did the Great Recession lead to the decline of the Great Moderation consensus? What is the current state of consensus among most economists?

    Found on Page 625

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