ECON 200 Lecture Notes - Lecture 13: Real Estate Transfer Tax, Money Creation, Phillips Curve
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What is the appropriate policy: fiscal policy, crowding out, suppose increase in g is financed by issuing debt (sell us bonds) Interest rates rise gdp decrease g only increase: everything changes now, consumer durable decrease, nx falls. Increase demand in credit market increases real interest rate: what happens in the as / ad framework. 12-24 months: suppose increase in g in response to a recession, ad away from origin, producing more than we should be, not interest rate story, need more resources. More resources increase wages interest rates go up. Raise output raise employment raise prices decrease output decrease employment. Fiscal policy used in severe recession: not instantaneous, markets always working firms will adapt. Firms go on hiring binges then clean out inefficient: curve shift. Friedman: natural rate of unemployment: changes with labor, regulatio(cid:374)s, te(cid:272)h(cid:374)ology, , take out recessions and booms, why it goes up and down. It does not control unemployment in the lr: determined by matching, not mp.
