ECONOMICS 576

MACROECONOMICS THEORY AND POLICY

Rational Policy Making

 

 

  I. Essentials of Rational Policy Making

 

     A. Selection of objectives

 

     B. Design of policy instruments

 

     C. Theory of relationships among relevant variables

 

II.  Consideration of Steps in Rational Policy Making

 

     A. Objectives

 

        1. Selection process

 

           a. Normative aspects of process

 

           b. Priorities

 

           c. Dynamic nature of process

 

        2. U.S. National Economic Objectives

 

           a. High employment/minimizing unemployment

 

           b. Price stability

 

           c. Economic growth

 

           d. International economic/financial stability

 

           e. Other

 

     B. Instruments

 

        1. Fiscal Policy Tools

 

           a. Taxation

 

           b. Transfers

 

           c. Government purchases

 

 

 

        2. Monetary Policy Tools

 

           a. Reserve requirements

 

           b. Discount rate

 

           c. Open market operations

 

     C. Theory

 

        1. Nature of Theory

 

        2. Role of Theory in Policy Making

 

        3. Schools of Thought

 

           a. Classical

 

           b. Keynesian

 

           c. Monetarism

 

           d. Supply Side

 

           e. Rational Expectations    

              (New Classical Macroeconomists)

 

           f. Neo Keynesians

 

III. Measuring Economic Activity

 

     A. Unemployment/Employment

 

        1. The Statistics

 

        2. The Concept

 

     B. Price Movements

 

        1. Consumer Prices

 

        2. Producer Prices

 

        3. GDP Prices

 

     C. Economic Growth

 

        1. GDP

 

        2. Industrial Production

 

        3. Other measures

 

     D. International Economic/Financial 

 

        1. Trade Balance

 

        2. Exchange Rates

 

        3. Other

 

     E. Financial Variables

 

        1. Money Stock

 

           a. M1

 

           b. M2

 

           c. etc

 

        2. Interest Rates

 

           a. Prime

 

           b. Discount

 

           c. T-Bills (primary/secondary)

 

           d. Other Treasuries

 

           e. Federal Funds

 

           f. Other

 

     F. Other Indicators of Economic Activity

 

        1. Housing Starts

 

        2. Index of Leading (Lagging) Indicators

 

        3. New Car Sales

 

        4. Inventories

 

        5. Durable Goods Orders

 

        6. Retail Sales

 

        7. Capacity Utilization

 

        8. New Home Sales

 

        9. Existing Home Sales

 

       10. etc