Question
Over the past three years, immense levels of fiscal policy in the United States have been utilized in an effort to stimulate and support the
Over the past three years, immense levels of fiscal policy in the United States have been utilized in an effort to stimulate and support the economy. Simultaneously, the Federal Reserve largely kept interest rates very low (some argue the recent hikes still represent dovish policy for Taylor Rule reasons) leading to a large expansion of the money supply. Using the tools we used in class, what should we anticipate will occur before monetary contraction (i.e. assume central bank policy remains expansionary)? Now assume that the central bank does engage in policy to restrict the money growth (i.e. policy is now deflationary). How does this change the dynamics you outlined above? Do the dynamics you outline match trends in the data from the past two years? Be sure to include any charts or equations you deem necessary.
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