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The class consensus appears to indicate "no output gap." With unemployment hovering around 5% and capital utilization declining from 80% last summer to about 75% this winter, some students agree with several of the Federal Reserve Board Members on whether the US economy's output is still producing below the full employment level of labor and capital, or "potential output," causing a "recessionary gap" in income. Many believe the economy is at full employment. Some students indicate they agree with Federal Reserve Bank of Richmond President Jeffrey Lacker that output is already at full employment, heading toward an inflationary gap.· 5 replies
While output, unemployment and prices began to indicate the recessionary gap nearly closed IV Quarter 2015, falling energy prices have dampened inflation. Uncertainty has been rising with the "BREXIT," the strengthening of the US dollar (although apparently abating lately), resulting in decreasing exports (which way does this impact US GDP?). Many of you referred to the BLS' labor statistics, US GDP and small growth in wages. With all of this in mind, this week’s focus is Monetary Policy. The central bank of the US (the Federal Reserve) oversees the monetary system of all 50 states, and faces a dual mandate of maximum employment and price stability.
Please review recent (QIV 2015, QI 2016) online sources on monetary policy and think about how money is created. (See Forbes, Wall Street Journal, and New York Times)
Consider the following:
After the Federal Reserve's aggressive expansionary monetary policy since the beginning of the Great Recession in 2007, do you agree with the Fed's latest stance on Monetary Policy to temporarily hold off increasing interest rates until later this year? Will there be any effect on GDP? on Inflation? on the stock market? Further declines in the unemployment rate? How much upward pressure on prices may result? Hint: Think about: How is the federal funds rate determined? What is central to the Fed's internal debate? What is the Federal Reserves "dual mandate?"
Are you in favor of, or opposed to "slowly beginning contractionary monetary policy, (raising interest rates)" and why/why not? Support your argument with data and theory. Remember, the Fed oversees the entire monetary system of the US, and faces a dual mandate of "maximum employment and price stability."Take into consideration what is happening overseas and in Texas, North Dakota, West Virginia, Wyoming, as well as Oregon as you frame your response.
A. Read the assignment, then post your first response (5 points) by Tuesday at 11:59 pm (2359 hours).
B. You are required to post an addition 2-3 substantive responses to classmates' (5 points) posts. This part is due by 11:59 pm (2359 hours) on Sunday evening.