Business Cycles
What's another name for a recession?
Economic contraction, bust, or downturn
If the Fed wanted to stimulate the US economy would they engage in contractionary/tight monetary policy or expansionary/loose monetary policy?
expansionary/loose i.e. attempting to lower interest rates
In comparing the 2008 recovery to the 2020 recovery, what was one of the main drivers behind the relatively quick recover in 2020?
(massive/generous) fiscal policy
When we talk about US government debt we include household and business debt as well.
Federal government debt is only the debt taken on by the US government, not other economic units
What was the first country presentation we listened to last week?
Ecuador
What happens to GDP growth, employment, and inflation during an economic boom/recovery period?
They all go up
What are reserves?
A bank's deposits at the Federal Reserve
Is austerity another name for contractionary or expansionary fiscal policy?
contractionary
What is one of the three biggest categories of federal goverment spending?
What is the "informal sector"?
People making a living that are not formally employed (i.e. craftspeople, vendors, etc.)
What is the general rule of thumb to identify a recession?
Two negative quarters of GDP growth.
Who is the current chair of the Federal Reserve?
Jerome (Jay) Powell
If the government spending multiplier is 2, what does this mean?
For every dollar the government spends, there is a two dollar increase in GDP
Explain why governments and businesses issue (sell) bonds and why investors are incentivized to buy them.
They sell bonds to raise funds for some purpose (usually long-term) and investors are incentivized by interest (return)
What presentation was based on a U.S. territory?
Puerto Rico
What is procyclical and countercyclical spending and give one example of each.
Procyclical - goes WITH the cycle - i.e. consumption
Countercyclical - goes AGAINST cycle - i.e. govt. spending
What is the federal funds rate and the interest on reserves rate? Which does the fed directly control?
Federal funds rate - interest rate at which banks lend overnight reserves
IOR - interest that the Fed pays on bank's deposits
Fed directly controls IOR
Give a recent example of industrial policy and explain what it is considered industrial policy.
[answers may vary] i.e. Inflation Reduction Act or IRA - US govt. intentionally tried to develop a market using its tools (spending and taxation)
Name at least two points economist Stephanie Kelton has made to make us feel less worried about the size of US government debt.
1. Federal governments can always print more money to repay their debt (not without consequence, but they can)
2. Fed. govt owns a lot of debt to itself
3. marginal tax rates have gone down, not up, as debt has gone up
4. China holds a small amount of overall debt and has incentives to keep buying US bonds
5. influential study on negative effect of debt-to-gdp over 90% dunked
Singapore
Compare GDP Growth, Unemployment Rate, and Inflation Rate under the Trump and Biden administrations (i.e. for Biden, which were lower or higher than in Trump's term)
GDP Growth and inflation rate higher under Biden (3.6% vs. 1.5% and 4.9% vs. 1.9%); unemployment lower under Biden (4.2% vs. 5.0%).
Name at least one reason why the Fed cannot reliably control inflation using the tools in its current toolkit.
1. Drop in federal funds rate may not decrease other interest rates.
2. a drop in interest rates may not produce more borrowing
3. more borrowing may not produce more spending
4. increased spending and wages may not lead to inflation.
What is “hysteresis ” or “economic scarring”?
the negative long-term effects of a prior downturn, i.e. long-term unemployed people
What is a stock variable and what is a flow variable? Name one of each.
Stock - something measured at one point in time i.e. amount of student debt you have.
Flow - something measured over a period of time i.e. how much you pay towards student debt each month.
Name at least two countries having problems with low birthrates.
South Korea and Japan