Policy(宏观经济学-加州大学-詹姆斯·布拉德福特·

– emergency meetings can also be scheduled on short notice
• When the FOMC decides on a policy change, it is implemented immediately
– it takes only minutes for interest rates to shift in response to FOMC actions
• one idea is to fix the money stock to a stable long-run growth path
• These tools are used very rarely
Fiscal Policy Institutions
• Fiscal policy in the U.S. is managed by Congress
– the Congress creates the tax laws that determine the amount of taxes imposed by the federal government
Figure 13.4 - The Budget Process
Government Expenditures
• Mandatory expenditures include spending for Social Security, Medicare, Medicaid, unemployment insurance, and food stamps
The History of Economic Policy
• By the end of the 1970s, many economists were convinced that active monetary policy did more harm than good
– they argued that the U.S. would be better off with an “automatic” monetary policy
The History of Economic Policy
• Because of the low and stable inflation and unemployment rates of the 1960s, economists and politicians thought that the business cycle was dead
Fiscal Policy Institutions
• Because of the way the budget process is set up, making fiscal policy in the U.S. is complicated and timeconsuming
– the time between when a policy proposal is made and when it becomes effective (the inside lag) can take years
– the inside lag associated with monetary policy changes can be measured in days or weeks
The History of Economic Policy
• The Employment Act of 1946
– established Congress’s Joint Economic Committee and the President’s Council of Economic Advisors
• Is monetary policy or fiscal policy more effective as a stabilization policy?
• How does uncertainty affect the way stabilization policy should be made?
Government Policy
• There are two kinds of government policy
– fiscal policy
• shifts the IS curve
– monetary policy
• shifts the LM curve
• The government uses policy to stabilize the macroeconomy by minimizing the impact of shocks
Figure 13.5 - Major Federal Government Expenditures by Category, 1960-2000
Figure 13.6 - Federal Government Discretionary Spending, Excluding Defense (2000)
• The Federal Reserve can also alter interest rates in two other ways
– the Board of Governors can alter legally required bank reserves
– the Board of Governors can lend money directly to financial institutions
• the FOMC lowers and raises interest rates and increases and decreases the money supply
Monetary Policy Institutions
• The Federal Reserve has a central office and 12 regional offices
Figure 13.1 - Structure of the Federal Reserve System
Figure 13.2 - Composition of the Federal Open Market Committee
Monetary Policy Institutions
• The FOMC meets approximately once a month to set interest rates
– the central office is the Board of Governors in Washington, DC
– the 12 regional offices are the 12 Federal reserve banks scattered around the U.S.
– the members of the Board of Governors and egional Federal Reserve Banks make up the FOMC
Monetary Policy Institutions
• Monetary policy in the U.S. is made by the Federal Reserve which is the central bank
– the principal policy-making body of the Federal Reserve system is the Federal Open Market Committee (FOMC)
Questions
• How long are lags associated with stabilization policy?
• Is it better for stabilization policy to be conducted according to fixed rules or to be conducted by authorities with substantial discretion?
– in a contractionary open-market operation, the Federal Reserve sells government bonds, decreasing bank reserves, and raising interest rates
Monetary Policy Institutions
• Discretionary expenditures must be appropriated each year by Congress
– these include defense spending, NASA, highway spending, education spending, and so forth
The History of Economic Policy
• Before the Great Depression, the general belief was that the government could not stabilize the economy and should not try to do so
• It was largely due to the writings of John Maynard Keynes that economists and politicians became convinced that governments could halt depressions and smooth out the business cycle
• However, in the 1970s, expected inflation rose and the Phillips curve shifted up
– the result was stagflation