Discuss the six classic questions over macroeconomic policy

Discuss the six classic questions over macroeconomic policy

Six Debates Over Macroeconomic Policy (Professor)

Please discuss the six classic questions over macroeconomic policy as delineated in Chapter 23 of the course textbook. Choose two of the questions and take either a pro or con side for each question. Support your responses with a source or sources, including the course textbook (Mankiw).


#2 Six Debates Over Macroeconomic Policy (Reading)

Consider what causes the lags in the effect of monetary and fiscal policy on aggregate demand. What are the implications of these lags for the debate over active versus passive policy?

Consider what might motivate a central banker to cause a political business cycle. What does the political business cycle imply for the debate over policy rules?

Be prepared to explain how credibility might affect the cost of reducing inflation.

Be prepared to explain why some economists are against a target of zero inflation?

Consider what adverse effects might be caused by tax incentives to increase saving?


#3 Inflation Targeting (Student)

The reading talks about how monetary policy can change when the government targets inflation.  This occurs when the central bank sets forth a specific inflation rate as tis goal to target inflation.  We may think the government would not want inflation, however the government may want some form of inflation in order to manage it and rather than having deflation occur.  Deflation causes prices to fall, which may seem like a good thing, however consumers will not buy cars, homes, or high priced items if the prices will be at a lower at a later time.

When the government sets forth inflation targeting, this works by basically seasoning us, the consumers to expect higher prices in the future.  This will get us to purchase that big-ticket item such as a vehicle.  Therefore, the government sets monetary policies in place to set inflation targeting.


Creel, J., & Hubert, P. (2015). HAS INFLATION TARGETING CHANGED THE CONDUCT OF MONETARY POLICY? Macroeconomic Dynamics, 19(1), 1-21. doi:http://dx.doi.org.contentproxy.phoenix.edu/10.1017/S1365100513000199

#4 Does Democracy Stifle Economic Growth (Student)


The video from this week’s viewing asks if democracy stifles economic growth. As we know, the U.S. is democratic, but countries such as China are not.  However, China has seen an expansion in economic growth and the video asks if democracy has hindered or helped this kind of economic activity?

Mr. Huang mentions how India has momentum in economic growth, but China has excellent raw fundamentals, such as social capital, public health, a sense of egalitarianism that helps its economy grow.  On the other hand, India has the momentum because of its investments in basic health education.  Mr. Huang concedes that government should do more and political reforms are needed for China to keep seeing its economic growth.

Class, do you believe democracy hinders or promotes economic growth?


Ted Talks: Yasheng Huang–does democracy stifle economic growth? [Video file]. (2011). Retrieved May 15, 2018, from https://fod.infobase.com/PortalPlaylists.aspx?wID=18566&xtid=48217

Solution preview

Should Fiscal and Monetary Policy makers try to stabilize the Economy?

Pro: Yes, policy makers should try to stabilize the economy. Firms and household pessimism lowers aggregate-demand (AD) and results to a recession. The result is reduced output and increased unemployment, which are forms of resource wastage. The resource wastage is not necessary since the government has the capacity to ‘lean against……………………..


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