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(Related to the Making the Connection on page 528 ) Each year, the president's Council of Economic Advisers prepares and sends to Congress The Economic Report of the President. The report published in February 2008 contained the following summary of the economic situation: "Economic growth is expected to continue in 2008 . Most market forecasts suggest a slower pace in the first half of 2008 , followed by strengthened growth in the second half of the year."a. What in fact happened to economic growth during 2008?b. What conclusion can you draw from your answer to part (a) with respect to economic forecasting and the formulation of economic policy?
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The year 2008 is known for the financial crisis, which was the most severe since the Great Depression of the 1930s. The US started 2008 with a real estate market correction and a subprime mortgage crisis. The main reasons for the downturn were the credit crunch Show more…
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Each year, the president's Council of Economic Advisers prepares and sends to Congress The Economic Report of the President. The report published in February 2008 contained the following summary of the economic situation: “Economic growth is expected to continue in 2008 . Most market forecasts suggest a slower pace in the first half of 2008, followed by strengthened growth in the second half of the year." a. What in fact happened to economic growth during $2008 ? ?$ b. What conclusion can you draw from your answer to part (a) with respect to economic forecasting and the formulation of economic policy?
(Related to the Making the Connection on page 453 ) In early 2009 , Christina Romer, who was then the chair of the Council of Economic Advisers, and Jared Bernstein, who was then an economic adviser to Vice President Joseph Biden, forecast how long they expected it would take for real GDP to return to potential GDP, assuming that Congress passed fiscal policy legislation proposed by President Obama: It should be understood that all of the estimates presented in this memo are subject to significant margins of error. There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress. But there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships $\ldots$ are derived from historical experience and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.
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(Related to the Making the Connection on page 623 ) In an opinion column in the New York Times, economist Justin Wolfers of the University of Michigan noted, "Over recent years, policy makers have also worked to lower long-term interest rates by shaping expectations about future monetary policy decisions." a. What does the Fed call such an attempt to shape expectations of future policy decisions? b. Briefly explain how this approach works.
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