AP Macro - Ch 15 - Expansionary Monetary Policy

A three minute review of the graphs that explain how an increase in the money supply by the Fed affects interest rates, autonomous investment, real GDP and price level.

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• economics

[AdamSmith04]

This Keynesian view of our monetary system is, I believe, false, and correctly criticized by Mises and other "Austrian" economists. Of course I found Keynes nearly impossible to read, while Mises was very understandable. The Mises Institute has a short collection of essays on this topic, titled "The Austrian Theory of the Trade Cycle" if you are interested in quick overview of their objections.

[BachGuitar3]

Okay so the FED wants to reach propel the economy so it reaches full employment by moving the AD to the right. Thats the a problem. eventually and correct me if I'm wrong, this type of monetary policy leads to inflation. Keynesians has its limits and doesnt always work. The best and most free economic ideology is Austrian Economics and the teaching of Ludwig Won Mises.

[drf7at1]

This is what I was taught at university. Now that I am working, this doesn't reflect how the system works. We can't realistically control money supply, the central bank can only control the cost of funds and the rate. (even then, I don't believe it is easy, people still access cheap credit from the Chinese saving glut) The cash rate means nothing, the mortgage rate is the real measure to control.

[Meomap111]

In a study published in 2009 in the Economic Record, ANU economists Robert Breunig and Carol Gisz reported price elasticities of demand for petrol of 0.13 for the short run and 0.20 for the long run.

a) Interpret these estimates: do they imply that the demand for petrol is elastic or inelastic?

b) Comment on why the long-run value is larger than the short-run value.

c) If the price of petrol rises, will total expenditure on petrol increase or decrease? Explain.

[SadegoGG]

@masrurkhan

Redistributing wealth is actually taking away wealth and leading to the wealth to be squandered in consumer goods. If you look at a Production Possibilities Frontier you will see how purchasing capital (investment) goods creates wealth in the long run. When governments create unconstitutional individual welfare programs, rather than providing in the general welfare, you result with a destruction of wealth and long term economic growth.

[SadegoGG]

@masrurkhan

What your talking about is providing basic goods and services based on externalities. With modern technology, electricity is best provided by a monopoly and therefore should be regulated because of positive externalities of people having electricity.

The problem is when you have a centralized banking cartel that makes 1.5 quadrillion dollars our of nothing, a country financially and socially overthrows its Constitution, then a government proceeds to redistribute wealth.

[masrurkhan]

@SadegoGG France and Germany, look at their labour policies. There is market failure, I have studied economics for the past four years. There needs to be regulation so people can have basic neccessities such as electricity because the marginal cost is very low and if the electric company was allowed to price at the highest possible price (the monopoly price), I can gaurantee that their would be no electicity in some of the impoverished places. Also there are cases of public goods.

[AdamSmith04]

@masrurkhan Personally, I think that the actions of both the Federal Reserve and Congress in the current crisis have been hurtful. Certainly these policies can create a short term boost to the economy like we are currently seeing, but I don't think that they are sustainable policies in the long run. Eventually the Congress has to cut spending or raise taxes, and the Fed has to raise interest rates or risk inflation. At that point the unsustainability of what we are doing will be revealed.

[AdamSmith04]

@masrurkhan Well, Friedman is dead, but I think his reaction to what is happening would go something like this: The actions of the Federal Reserve during the current crisis have prevented another great depression. Congress's decisions to increased government spending, on the other hand, have hurt the economy and prevented a swift recovery.

[masrurkhan]

@AdamSmith04 That's right, according to the Austrian School, government and central bank should do nothing. Talk about a joke, how do you percieve that would work out in a huge reccession like GFC. Obama and Bush applied Keynesian policy to dig the US out of the GFC, and it worked and is even working now. Strange how blind Neo-Classicals haven't raised their voices once the Keynesian policies started to work. I'm waiting for Friedman's reaction.

[jimjimjim1985]

This is a complete lie. Economics is a dash of science and a bucket of fantasy. The inflationary effect of QE ultimately undermines consumer and investor confidence. The investors demand a higher inflation risk premium which raises his hurdle rate thereby reducing overall investment. The consumers see rising bills and become risk averse. Real consumption and investment is reduced. If this concept had an equivalent in Physics it would be the equivalent of the free energy machine.