Essay on "Macroeconomic Policy Jan 20, 2021, Inauguration Day"
Essay 4 pages (1160 words) Sources: 1
[EXCERPT] . . . .
Macroeconomic PolicyJan 20, 2021, inauguration day is a cold, overcast, and dreary day in the Nation's Capital, representative of the economic malaise which has gripped the country. With the economy hemorrhaging jobs at several hundred thousand a month, and GDP negative for three consecutive quarters, the American people are clamoring for the new administration to take action. It was only twelve short years ago that newly elected President Obama faced a similar economic downturn brought on by a financial crisis rooted in subprime mortgages. The actions of his administration focused on a Keynesian response to the crisis, replete with considerable spending in hopes of lifting economic growth through the government expenditure component of GDP. Concomitant to this approach, Federal Reserve Chairman Ben Bernanke set and continued a near zero interest rate federal funds policy to help stimulate the economy through a reflation trade.
Fast forward twelve years, and as the newly elected President, a different set of factors confront the first months of the administration, namely the Federal Reserve Chairman has resigned, requiring immediate response as to a new appointment. The last Chairman, as Bernanke twelve years earlier, was a proponent of a relaxed monetary policy, and had maintained a near zero target on the fed funds rate for an extended period. Additionally, prior to his resignation the Chairman signed on to a number of "bail out" measures deemed systemically crucial to the economy. While the Fed is an independent body, the choice of the Fed chairman reflects on the President's ideology regarding monetary policy. Additionally, a Chair for the Council of Economic Advisors mu
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Appointee: Fed Chairman and Monetary Policy
The current economic situation which faces the new administration presents a negative growth pattern in GDP, an unemployment rate above 9.5%, a declining dollar, and burgeoning federal deficits. In considering first the appointment to the Federal Reserve, the new Chairman will have to subscribe to a policy of targeting the fed funds rate according to the so called "Taylor Rule." The Taylor rule is a formulaic mechanism developed by Stanford Professor John Taylor which if used properly can be a consistent adjustment lever for interest rates. Taylor's formula is fairly straightforward and "says that the federal funds rate should equal 1.5 times the inflation rate plus .5 times the GDP gap plus 1" (Economic One. September 1, 2010). The previous Fed chairman had adopted a near zero target for the fed funds rate and had articulated holding that rate until the unemployment rate moved down considerably, a sign of economic growth. The new Fed chairman could certainly argue that the zero rate should be in effect now however, going forward the monetary policy would necessarily follow the Taylor rule and its guidance on interest rate policy.
A second crucial ideological component for the new Fed chairman is a commitment to combat incipient inflation to ensure the stability of the dollar's purchasing power. Following the blueprint of the Taylor Rule the fed funds rate target will increase as signs of inflation pick up in wages and commodities. An extended near zero policy on the fed funds rate achieved through open market bond buying… READ MORE
Quoted Instructions for "Macroeconomic Policy Jan 20, 2021, Inauguration Day" Assignment:
Using the text book Macroeconomics 18th Edition by Mcconnell Brue Flynn, please analyze the following case. Please use vocabulary words and concepts from the book. Please have a clear thesis and macroeconomic evidence to back it up. Thank you in advance.
The case:
You have just been elected president of the United States, and the present chairman of the Federal Reserve Board has resigned. You need to appoint a new person to this position, as well as a person to chair your Council of Economic Advisers. Using the material in the text and your knowledge of macroeconomics, identify the views on macro theory and policy you would want your appointees to hold. Remember, the economic health of the entire nation, and solution to the current economic *****"crisis*****" will be impacted by this decision.
As you know, the current Federal Reserve Chair has proposed a number of *****"bail out*****" measures to address the current economic situation. In the second part of your paper, indicate why or why not you would recommend that your new appointee continue these recommended policies, and identify any new policies that you would like your candidate to follow.
How to Reference "Macroeconomic Policy Jan 20, 2021, Inauguration Day" Essay in a Bibliography
“Macroeconomic Policy Jan 20, 2021, Inauguration Day.” A1-TermPaper.com, 2011, https://www.a1-termpaper.com/topics/essay/macroeconomic-policy-jan-20-2021/51779. Accessed 5 Oct 2024.
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