POLICY FORMULATION

Problem:

Unemployment

Inflation

Slow growth

Income Distribution Concerns

Policy Choices:

MP

FP

Institutional Change

Policy Attributes:

Lags (MP, FP)

Symmetry (domestic, foreign)

Political feasibility (policy biases)

Rational Expectations

Rules vs. Discretion

Consequences:

Growth (change in real GDP/Pop.)

Equity Change in Gini coefficient

Efficiency (AD =AS) = FEO

Stability acceptable level of inflation

 

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