Money and the Prices in the Long Run and Open Economies

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Purpose of Assignment 

The primary focus of this assignment is to understand the impact of Fiscal and Monetary Policy on GDP.

 

Week 3 will help students develop an understanding of what money is, what forms money takes, how the banking system helps create money, and how the Federal Reserve influences the quantity of money. Note – there are limits to how much control over the bank system the Federal Reserve can force. The banks are the major source of money creation in a boom period, because of lending, and during a recession the Federal Reserve can’t force them to make loans, hence the effective money supply can shrink even while the Federal Reserve is engaging in significant expansionary policies. The past decade shows us there is almost no direct relationship between these money supply quantity and inflation. This partially explains why we saw effectively zero inflation during the largest period of Federal Reserve Expansionary Monetary Policy in the history of the economy, during the past decade or so.The IS/LM model clearly shows this is not the case.  At a minimum three additional factors must be accounted for: 1) productivity growth, 2) population growth, and 3) Agg. Demand/Agg. Supply imbalances. Students will review the basic concepts macroeconomists use to study open economies and will address why a nation’s net exports must equal its net capital outflow.  Students will focus on the effect of Fical and Monetary policy on GDP.

 

Assignment Steps 

Resources: National Bureau of Economic Research 

Develop a 1,500 to 2,000-word economic outlook forecast that includes the following:

  • Provide a five year history of the “Big Three” macro economic variables (GDP Growth, Unemployment Rate, and Inflation Rate).  and compare to *a* forecast for the next five years.
  • Discuss how  fiscal and monetary policies can influence economic growth, unemployment, and inflation.
  • Based on your above findings discuss whether the US fiscal or monetary policies should be changed. If you feel they should be changed provide your reasoning; if you feel they should not be changed provide your reasoning.
  • What do you feel is the most significant macro economic problem currently facing the united States? Provide your reasoning for your conclusion.

Use your textbook as your primary source material, use any course resources on the website as your secondary material. Also use peer-reviewed sources from the University Library or other sources as needed. 

Format your paper consistent with APA guidelines. 

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