Question

With respect to recent Federal Government Fiscal Stimulus packages and Federal Reserve policies to control liquidity and counter the credit crisis, what has the Federal Government and the Federal Reserve been doing? Why? What policy tools have they been using?


Inflation has traditionally been a concern of the Federal Reserve. Recently, there has been the possibility of deflation. Should the Fed be concerned with deflation of prices? What about targeting 'nominal GDP'?

When inflation occurs some economic agents gain and some lose. Who would gain and lose if deflation occurs? Why? What will happen to interest rates and investment according to Keynesian and Classical/ Monetarist theories?

Can deflation occur without recession? Will deflation worsen a recession or shorten it?

Should the Federal Reserve do anything to prevent deflation? What policies do you recommend the Fed follow?

Is inflation still a possible threat? What could cause a rise in inflation? Suggest some possible scenarios.

Answer 1