Class Materials for Lecture 16

Brief Outline of Topics Covered in Lecture 16

Chapter 25 Rational Expectations and Implications for Policy [cont.]

• New Classical Macroeconomics Model
  • Effects of unanticipated and anticipated policy
  • Can an expansionary policy lead to a decline in aggregate output?
  • Policy ineffectiveness and implications for policymakers

• New Keynesian Model 
  • Effects of unanticipated and anticipated policy
  • Implications for policymakers

• Comparisons of New Classical, New Keynesian, and Traditional Keynesian Models 
  • Short-Run Output and Price Responses

Video:

Materials from class:

Additional Reading:

• Why it is hard to imagine consumption reigniting - Richard Green
• Fed Begins Testing a Strategy to Exit a Securities Program - NYT
• Credit booms gone bust - Economists' Forum
• Why the Chinese don’t spend - James Surowiecki
• US personal bankruptcy reform exacerbated the housing crisis - voxeu.org

Application:

The CBO says the stimulus package worked. See " Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009, CBO."

Here's the key table from the report:

[click to enlarge]