discussion of economists

7/21/2019 Discussion of Economists

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C2a6 H, R

ACTIVITY C2-1

Listening in on a Discussion of Economists

Five distinguished professors of economics are discussing current economic

policy at a luncheon press conference attended by leading reporters of business

news. Lets listen in.

Professor Jude: Lets tal! about the issues. "n the fiscal policy side, this administrationsbudget proposal is not e#travagant or inflationary. $he ta# cuts are critical to stimulating

wor! effort and business investment in an economy %ust emerging from recession, and they

are partly balanced by spending cuts. &ith so many people still unemployed and so manyfactories still closed, a policy of this !ind cannot re!indle inflation. &e must let people !eep

the fruits of their labor and savings as incentives to produce and invest more. $he spending

cuts will prevent government from continuing to receive ever' increasing pieces of the

nations economic pie. (n addition, government intrusions into economic activity must bescaled bac!, beginning with the repeal of unnecessary regulations.

Professor Maynnerd: )#cuse me, *r. +ude. ut that position ma!es little sense. (ts

inade-uate demand, not supply that we should be most worried about. "ur economy does not

automatically return to full employment, so when business and consumer spending is notenough, discretionary government policies are needed to stimulate the economy. ut let me

say that this administrations ta# cuts have been and are grossly unfair. $he ta# cuts have

favored the rich, and the spending cuts have reduced programs that help maintain economic

security for mericans with low incomes. /oreover, the spending cuts are not policies aimedat correcting the inade-uate level of demand in the economy. $a#es should be raised, but only

on the wealthy, and the revenues raised can be used to restore the originalfunding levels for

government programs that help low'income people.

Professor Miltie: Let me %ust comment, 0rofessor /aynnerd that you completely leave out

the monetary approaches that the administration should pursue. Fiscal policy can do only somuch to stimulate demand in the economy, because when the government borrows money for

its spending it crowds out spending by firms and consumers, especially for interest sensitive

purchases such as houses, cars, and business capital e#penditures. $his is where monetarypolicy comes in. (f the Fed e#pands the money available, there will be less pressure for

interest rates to rise. &ell be able to sustain the recovery in housing, autos, and other sectors.

nd businesses will be able to get loans for investments at affordable interest rates. (deally,

we should encourage steady economic growth by pursuing an increase in the money supplyconsistent with the non'inflationary growth of economic activity.


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C2a1 H, R

ACTIVITY C2-1 (CONTINUED)

Listening in on a Discussion of Economists (continued)

Professor Lukas: "h, please 0rofessor /iltie. ou test the limits of my rationality3 ouforget that the e#pansion of the money supply were currently witnessing is part of a long

history of bungling by the monetary policyma!ers. "ur most recent recession was brought on

by the Feds %amming on the monetary bra!es by an abrupt reduction in the increase of themoney supply in order to bring inflation under control. $hey overdid it, as they always do,

and because of time lags they produced a recession. 4ow, theyre overdoing it in the other

direction, stepping on the monetary accelerator and increasing the money supply too rapidly.$hat will stimulate the economy all right, but in a year or two those actions will re!indle

inflation. similar story can be told for fiscal policy. /ost people can predict the policy

actions of the government and these e#pectations alter current behavior and economic

decisions. $hus, it is rarely possible for government policies, monetary or fiscal, to have a

genuine lasting impact because consumer and business decisions neutrali5e them. t best,government policies should be predetermined to stabili5e the influence of e#pectations.

Professor Smyth: &ell, 0rofessor Lu!as, ( have finally heard from someone who understandshow the economy really wor!s. ( cannot agree with our colleagues who give government and

the central ban! such active roles in determining the health of the economy. lthough

inade-uate demand and recessions might be e#perienced in the short run, the economy is self'

regulating. &ages, prices, and interest rates are fle#ible, allowing mar!ets to clear if yougiven them enough time. (n other words, the economy will ad%ust itself to the full

employment level because supply creates its own demand. 0olicy interventions cannotchange the real level of economic activity, although they may affect the price level. )#ceptfor national defense and mar!et failures, the proper role of government should be minimal,

and the economy must be free to operate on its own.

Ladies and gentlemen, thats all the time we have. Lets give our distinguished panel a round

of applause.


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!Y ECONO"I#T# DI#A$%EE

Economists disag&ee fo& t'e fooing &easons

1* +ecause t'e, use diffe&ent time e&iods* 2* +ecause t'e, ma.e diffe&ent assumtions* /* +ecause t'e, 'a0e diffe&ent t'eo&ies aout 'o t'e econom, o&.s*

* +ecause t'e, 'a0e diffe&ent 0aues and ideas aout 'ic' economic goas a&e most

imo&tant.

naly5e your assigned professors comments from ctivity C2'7, using the

following format

4ame of professor 88888888888888888888888

&hat is the problem that the professor has identified in the economy9 888888888888888

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&hat is the professors ma%or point or policy regarding this problem9 888888888888888

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&hat time period is being used in this analysis9 888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888

&hat assumptions has the professor made in the analysis of the economy9 88888888888

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&hat theory does he use to support his proposal9 888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888

&hat values or goals does the professor support9888888888888888888888888888888888888888888888888888888888888888888888888

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&hat evidence can you identify in the reading that illustrates these values9

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88888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888888


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discussion of economists

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