Question
Read the article below and answer the following question: Why are economists rethinking the fiscal and monetary policy? Economists are rethinking monetary and fiscal policy.
Read the article below and answer the following question:
Why are economists rethinking the fiscal and monetary policy?
Economists are rethinking monetary and fiscal policy. That's a potentially positive development. (Jared Bernstein, 2019)
A perceptive, progressive politician I know once described economists as "the people who tell you why you can't do the things you want to do." That's not wrong, but there are substantial changes brewing in the way economists think about two of the most critical areas of economic policy, monetary policy run by the Federal Reserve and fiscal policy run by the federal government. Moreover, they're progressive changes rationales to do the things we want (and need) to do to help those left behind.
In the case of monetary policy, that means running high-pressure labor markets. In the case of fiscal policy, it means recognizing that deficit-reduction is not always a near-term priority.
The data in the figure below is at the heart of both changes: Interest rates and inflation have been low and stable for many years. Inflation has averaged 1.7 percent since the mid-1990s. (This is core inflation, the Federal Reserve's preferred gauge, which leaves out volatile energy and food prices.) That has contributed to low interest rates, since when inflation is expected to remain low, lenders demand less of a hedge against it.
Core Inflation and interest rate on 10-year Treasury bond 16 14 12 10 Percent 8 6 4 2 0 65 70 75 80 85 90 95 00 05 10 15 Core inflation 10-year interest rate Sources: BEA and Treasury Dept. (Jared Bernstein)Step by Step Solution
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