Question

Assume an economy where the current economic conditions include:
Unemployment stands at 10% and the Full Employment level is 5%.
Inflation is running between 1 and 2% on an annual basis
Long term interest rates are 2% and short term are near zero
Assume that the GDP is nominally at 14 Trillion Dollars
What actions, if any, should policymakers take to increase employment and keep the price level low? Please include the following information in your answer.
Your specific approach to fiscal policy or whether you do not support the use of fiscal policy?
Your specific approach to monetary policy or whether you do not support the use of monetary policy?
What is the recessionary GDP gap as described in Okun’s Law
What are the risks of your approach, in the short term?
What are the risks of your approach, in the long term?



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  • CreatedAugust 05, 2013
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