Question

In: Economics

Purpose: To develop the skill of making and assessing economic arguments and to deepen understanding of...

Purpose: To develop the skill of making and assessing economic arguments and to deepen understanding of the economic concepts introduced in Chapters 13 and 14.

Context: Part of making an effective argument is picking the strongest opposing or counter-argument and refuting it (convincing your audience that it is wrong). You can do this, e.g., by demonstrating that the argument is flawed or acknowledging that it is a valid point but not the whole picture.

Task: Make one substantive but a succinct post (100-200 words) to the Activity 8: Economic Counterarguments Forum. Choose one and only one of the following scenarios for your post:

1. Assume that you are in favor of maintaining Federal Reserve Independence (see page 295) and consider the following counterargument:

                The US Congress should reduce Federal Reserve Independence. It is unfair that the power to control the money supply is in the hands of secretive unelected officials who are more concerned about keeping inflation low to protect the interests of Wall Street than in reducing unemployment to help ordinary citizens. Moreover, the Federal Reserve's efforts to reduce the severity of business cycle swings actually makes them worse, which is inefficient.

OR

2. Assume you are arguing in favor of the use of discretionary fiscal policy and consider the following counterargument:

The US Congress should pass a balanced-budget amendment that disallows fiscal deficits. This irresponsible spending causes crowding out of the productive private investment increases the size of an overbearing Federal government and burdens our children with a dangerously high public debt. The entitlement programs are bad enough but after the 2008 financial crisis, the government dramatically increased its borrowing to support an ineffectual effort to spend our way out of the recession. This has to stop.

Solutions

Expert Solution

Yes, It is important that the election of the officials is more transparent but instead of highlighting this fact the federal Reserves' independence has been highly debated upon. Donald Trump has openly scrutinized and criticized the Fed chairman by even calling him a bigger enemy of the US than China. It is important to observe that the chairman is working by the precedence laid by Congress as it was induced as an independent entity. Independence induces obligation of transparency according to Jerome Powell as the public and Congress can hold the Fed accountable. The predominant reason that it should be independent is to protect the policies from political pressure or agenda, for instance , during 1972 The Chairman under the influence of Richard Nixon reduced the key interest rate, and instead of stimulating the economy, it led to increased inflation. The introduction of politics will put the entire economy at risk and according to Garriga 2016, the paper observed a strong correlation observed in economies with low inflation as those economies had an independent central bank. To reduce inflation or unemployment will depend on the goals or objectives of the Fed as the policies they implement are based on scientific research and reports. All economies undergo a phase of downswing but it is important to highlight the recovery and 2008 crisis is an example of how the policies implemented by the authorities recovered the economy to a recent point where unemployment was 3.6%.


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