ECON 322 Lecture Notes - Lecture 9: Economic Forecasting, Jato, Automatic Stabilizer
27 Sep 2016
Department
Course
Professor
Document Summary
=e[ ] - (u - un) + v = e[ ] + =inflation u = unemployment rate, un = natural unemployment rate v = supply shock plug. Active policy: policies that fluctuate over the course of the business cycle with the aim of stabilizing the economy (use expansionary policy during recession and contractionary policy during expansion) Passive policy: policy does not change over the course of the business cycle; pick a policy that works well on average and stay with it. The case for passive policy: policy lags. Inside lag: time that passes between a shock hitting the economy and the policy action that responds to the shock. (big issue for fiscal policy) Outside lag: time that passes between a policy decision and the effects of that policy being felt in the broader economy. (big issue for monetary policy) takes 12-18 months before economy is impacted. The tax code is an example of an automatic stabilizer.
