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17 Stabilizing The National Economy
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17 Stabilizing The National Economy

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17 Stabilizing The National Economy 17 Stabilizing The National Economy Presentation Transcript

  • Stabilizing the National Economy Objective: Analyze the role the government plays in stabilizing the national economy
  • Stabilization Policies
    • In order to reduce uncertainty in the economy the government uses monetary and fiscal policies; together these are called stabilization policies
  • Measuring Unemployment
    • Unemployment rate is the percentage of the civilian labor force that is without jobs but is actively seeking employment
    • Types of unemployment include:
    • Cyclical- associated with the up and down movement of the business cycle
    • Structural- caused by changes in the economy
    • Seasonal
    • Frictional- temporary; changing jobs etc.
  • Inflation
    • Demand-Pull: Theory the prices raise as the result of excessive business and consumer demand that results in shortages
    • Cost-Push: Theory that higher wages and profits push up prices
    • Stagflation: A combination of inflation and low economic activity
  • John Maynard Keynes
    • Developed fiscal policy theories during the Great Depression
    • Keynes believed that forces of supply and demand operate too slowly in a serious recession and that the government should step in to stimulate demand
  • The Circular Flow Model of the Economy
    • In an economy there are two markets in play
    • A resource market and a product market
  • Monetarism
    • Is the theory that deals with the relationship between the amount of money the Fed places in circulation and the level of activity in the economy
    • Many economists believe should increase the money supply smoothly because when you increase the supply rapidly it could lead to inflation
  • Policy verses Reality
    • Fiscal policy never matches fiscal reality because of two reasons
    • Political process to enact change takes too long
    • Lag times exist between the time policy is enacted and when it becomes effective
  • Review
    • What two markets make up the Circular flow market?
    • Ans. Resource and Product market
    • What is Monetarism?
    • Ans. theory that deals with the relationship between the amount of money the Fed places in circulation and the level of activity in the economy
    • Name the different types of Unemployment?
    • Ans. Cyclical, Structural, Seasonal, and Frictional