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Ivan Pongracic explains how the Fed may have been responsible for prolonging the Great Depression. Read the article on this website http://www.fee.org/the_freeman/detail/the-great-depression-according-to-milton-friedman. Explain Milton Friedman's theory about the cause of the Great Depression. How does this impact your understanding of what policy solution would have been best to get the economy going again?

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Related questions

Please read the following article from MoneyNews.com: http://www.moneynews.com/StreetTalk/Bullard-Unemployment-Inflation-Fed/2014/07/09/id/581767/.

The focus of the article is a predicted rise in the rate of inflation, driven partially by a drop in the unemployment rate. How does this relate to our studies of inflation and unemployment, especially the Phillips Curve?

Do you see examples in your own life that support the author's holding? Do you agree with the premise of the article? Why or why not?

Article:

Bullard: Falling Unemployment Will Push Inflation Above Fed Target.

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Federal Reserve Bank of St. Louis President James Bullard said a surprisingly fast drop in unemployment will fuel inflation, bolstering his case for an interest-rate increase early next year.

I think we are going to overshoot here on inflation, Bullard said Wednesday in a telephone interview from St. Louis. He predicted an inflation rate of 2.4 percent at the end of 2015, well above the Feds 2 percent target.

That is a break from where most of the committee seems to be, which is a very slow convergence of inflation to target, he said in a reference to the policy-making Federal Open Market Committee.

A drop in the jobless rate to 6.1 percent in June, the lowest level in almost six years, increases pressure on the Fed to raise the main interest rate sooner than most officials have estimated, Bullard said.

The St. Louis Fed chief, who calls himself the North Pole of inflation hawks, estimates full employment at about 6 percent. A lower level may stoke wage and price pressures, he said.

When unemployment goes into the five range, that is going to below the natural rate, or the level at which inflation is neither speeding up nor slowing down, Bullard said.

Inflation has been unusually low in 2013 and the first part of 2014 because of temporary circumstances such as European economic weakness.

Those special factors are wearing off, and the economy is on the upswing, Bullard said. Those factors will send the inflation rate above the target in 2015.

1. Scarcity in economics means: we do not have sufficient resources to produce all the goods and services we want. the wants of people are limited. there must be poor people in rich countries. shortages exist in nearly all markets. You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The statement that best represents this economic concept is: resources are scarce. the real cost of something is what you must give up to get it. positive economics explains how the economy actually works. economic models are used to answer “what if” questions. . If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. considered only if additional taxes need to be raised to fund the spending. measured in terms of the best alternative use for that money. For a student that owns his or her own home and doesn't plan to live in the dorm the cost of going to college is: tuition and the cost of housing. tuition, the cost of housing, and the cost of books. tuition, the cost of books, and forgone income. forgone income only. Keynesian economics stressed: the importance of total spending. the self-correcting power of free markets. the long run. that the Depression should run its course to bring down the high cost of living. The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as: a tax-and-spend policy. monetary policy. fiscal policy. free-trade policy. When building a model, economists: simplify reality in order to highlight what really matters. attempt to duplicate reality in all of its complexity. ignore the facts and instead try to determine what the facts should be. are careful to avoid the scientific method. Which is a normative statement? The minimum wage has not kept pace with inflation. The minimum wage is an important tool in fighting poverty and should be increased. The minimum wage can create higher unemployment for teens and unskilled workers. A higher minimum wage is expected to increase the price of a fast-food cheeseburger. Which is an example of a positive statement? The poverty rate should be 4%. A high rate of economic growth is a more important economic goal than a low rate of unemployment. The federal government pays for 46% of U.S. health care costs. Everyone in the country should be covered by national health insurance. Economists may disagree about policies because they: may approach the issue using the same sets of values. may use different economic models. enjoy disagreeing with each other. only consider issues in positive economics.

Article:

INTRA, Portugal--Leaders of the world's top central banks warned Wednesday that escalating trade conflicts could ricochet through financial markets and hurt the world economy, potentially prolonging the era of ultralow interest rates.

Rising tensions over trade come at an awkward time for major central banks, which have started moving away from easy-money policies introduced since the global financial crisis.

In a moderated discussion in Portugal, the heads of the Federal Reserve, European Central Bank, Bank of Japan and Reserve Bank of Australia called for calm and warned that the costs of further escalation could be high.

Global stock markets sagged this week after U.S. President Donald Trump called for a fresh round of tariffs on $200 billion of Chinese goods, upping the ante after he previously approved tariffs on $50 billion of goods.

"It's very worrisome and again, I can't see any positive," said ECB President Mario Draghi, who was hosting the event, Europe's answer to the Fed's annual economic symposium in Jackson Hole, Wyo.

Mr. Draghi warned that disputes over trade have created "considerable uncertainty" for the 19-nation eurozone economy, which has slowed sharply in recent months.

The European Union said Wednesday it would impose tariffs on U.S. goods worth around [euro]2.8 billion ($3.2 billion) in response to American import tariffs on steel and aluminum. But the EU's move is unlikely to discourage the U.S. from a second round of tariffs, possibly targeted at European autos, which would hit exports worth 0.3% of the EU's economic output, said Oliver Rakau, an economist with Oxford Economics in Frankfurt.

In a shift reflecting those concerns, Mr. Draghi warned Tuesday that the bank could delay plans announced only last week to phase out its [euro]2.5 trillion bond-buying program and suggested the timing of a first interest-rate increase could be pushed back.

Jerome Powell, chairman of the Federal Reserve, warned in the discussion that changes in trade policy "could cause us to have to question the outlook." The Fed last week raised short-term interest rates and signaled a quicker pace of interest-rate increases to keep the U.S. economy from overheating.

While the tensions haven't yet dented U.S. economic growth, Mr. Powell said businesses increasingly were expressing concerns to the Fed about how the conflict might affect their plans for investment and hiring.

For Japan, whose central bank maintained its aggressive stimulus policies last week to support a softening economy, the trade conflict is "a matter of great concern," said Bank of Japan Gov. Haruhiko Kuroda.

The indirect impact on Japan's economy could be "quite significant if the escalation between China and the U.S. continues," Mr. Kuroda said, because it could affect the Asian supply chain centered on countries like Japan and Taiwan and across southeast Asia.

While the tariffs themselves might not derail the global economic recovery, the fallout could be magnified by investors through financial markets, said Australia's central bank governor, Philip Lowe.

"I believe what is happening [on trade] is incredibly worrying," Mr. Lowe said. "It wouldn't take that much for financial markets to turn this into a very big global event."

The problem for central banks, in Japan and elsewhere, is that they appear to have little ammunition left to deal with any new economic downturn after years of aggressive stimulus. The value of assets held by the Bank of Japan is set to exceed the nation's annual economic output over the coming months, while the ECB's balance sheet also will continue to grow through the end of this year. Both central banks are still holding short-term interest rates below zero.

Asked how the ECB could respond to any new recession, Mr. Draghi said he didn't expect economic growth to turn negative between now and 2020.

Mr. Powell acknowledged that central banks would have less capacity to fight any new recession because interest rates are already close to zero. The U.S. government also has less scope to increase spending than in the past, though it still has room to react, he said.

"I really hope that this escalation could be rescinded and a normal trading relationship between the U.S. and China would prevail," Mr. Kuroda said.

As there any positive outcomes of rising trade tensions, according to central bankers? . What actions would central banks in theory launch, in theory, to counteract any problems with economic growth in their countries? Why are central banks worried about these policy moves at this point in time?

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