In this chapter you will consider whether policymakers should try to stabilize the economy, consider whether monetary policy should be made by rule rather than by discretion, consider whether the central bank should aim for zero inflation, consider whether fiscal policymakers should reduce the government debt, consider whether the tax laws should be reformed to encourage saving. | Review of the previous lecture As growth accelerated, unemployment and poverty have declined. Over 13 million people were brought out of poverty during 2001-08. million jobs were created in 7 years. Unemployment rate decline from percent in 2001-02 to percent 2007-08. Living conditions of the people have also improved. Inequality increased only marginally during 2001 and 2006 but declined in 2007-08 Pakistan is one of the least unequal countries in the world. Consistency and continuity in policies will sustain economic growth and further reduce poverty. Five Debates Over Macroeconomic Policy Instructor: Abbas Course code: ECO 400 Lecture 28 Five Debates over Macroeconomic Policy Should monetary and fiscal policymakers try to stabilize the economy? Should monetary policy be made by rule rather than by discretion? Should the central bank aim for zero inflation? Should the government balance its budget? 5. Should the tax laws be reformed to encourage saving? . | Review of the previous lecture As growth accelerated, unemployment and poverty have declined. Over 13 million people were brought out of poverty during 2001-08. million jobs were created in 7 years. Unemployment rate decline from percent in 2001-02 to percent 2007-08. Living conditions of the people have also improved. Inequality increased only marginally during 2001 and 2006 but declined in 2007-08 Pakistan is one of the least unequal countries in the world. Consistency and continuity in policies will sustain economic growth and further reduce poverty. Five Debates Over Macroeconomic Policy Instructor: Abbas Course code: ECO 400 Lecture 28 Five Debates over Macroeconomic Policy Should monetary and fiscal policymakers try to stabilize the economy? Should monetary policy be made by rule rather than by discretion? Should the central bank aim for zero inflation? Should the government balance its budget? 5. Should the tax laws be reformed to encourage saving? Five Debates over Macroeconomic Policy Debate I Should monetary and fiscal policymakers try to stabilize the economy? Pro: Policymakers should try to stabilize the economy The economy is inherently unstable, and left on its own will fluctuate. Policy can manage aggregate demand in order to offset this inherent instability and reduce the severity of economic fluctuations. There is no reason for society to suffer through the booms and busts of the business cycle. Monetary and fiscal policy can stabilize aggregate demand and, thereby, production and employment. Con: Policymakers should not try to stabilize the economy Monetary policy affects the economy with long and unpredictable lags between the need to act and the time that it takes for these policies to work. Many studies indicate that changes in monetary policy have little effect on aggregate demand until about six months after the change is made. Fiscal policy works with a lag because of the long political process that governs .
