ECON 201 Lecture Notes - Lecture 23: Aggregate Demand, Rational Expectations, Phillips Curve

• School: University of Maryland
• Department: Economics
• Course: ECON 201
• Professor: John Neri

Document Summary

Great recession, 2007-2009 natural rate: started in december 2007: unemployment rate: 5% at the, by october 2009, 10. 1, why didn"t we simply let the economy recover, fed reserve started cutting interest rates in 2008. Result: fiscal stimulus package, early 2009, and december 2010, faster recovery from 2007-2009 recession, probably a higher inflation rate. The cost of reducing unemployment more rapidly using expansionary fiscal and monetary policy is a permanently higher inflation rate (than it would be otherwise) How do policy makers decide between unemployment and inflation. Costs of inflation and unemployment: controversy over the costs and benefits of using demand, policy makers that feel inflation is costly will not accept the management to fight unemployment inflationary cost of reducing unemployment faster. Slope of sr phillips curve: the steeper the curve, the higher the inflationary cost of, the flatter the curve, the lower the inflationary cost of reducing unemployment reducing unemployment.