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Chapter 15

Chapter 15 Policies For Economic Stability (98% on the test)

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Department
Economics
Course
ECON 2035
Professor
All Professors
Semester
Fall

Description
Chapter 15Policies for Economic Stability Set goals that Fed are legally mandated to achieve Employment Act of 1946 HumphieyHawkins Act 1975 oMax sustainable output growth potential level of output measurement YoMax employmentpotential level of output measurement YoStable prices inflation rate measurement Debate on what stable prices mean Have longterm target of what stable prices should be oModerate longterm irates real interest rate measurement rHave stable prices and have stabilityshould have moderate interest rate What should interest rate be Decided by the Taylor Rule Financial Crisis major disruption of the financial system typically involving crashes in asset prices and failures of financial institutions 151 Choosing the Longrun Inflation Rate StablepriceslowpositiveinflationrateotherwisedecreasedecisionmakingAzeroinflationrateinflationhasharmfulsocietaleffectsminimizedwhen0AlowstablepositiveinflationrateoCostsofbringingtheinflationratedownto0coststosocietyistoohighbecauseofthereducedoutputloweremploymentoRiskoffallingintoaliquiditytrapisreducedmostcentralbanksoCentralbanktacticsExplicitInflationTargetarangeorratethatacentralbankpublicallyannouncesasitslongrungoalforinflationImpl
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