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8/6/2019 Five Debates by Jatin Ravi n Mahesh
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Presented By:Jatin BarotRavi Patel
Mahesh Nakrani
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1. Should monetary and fiscal policymakers try to
stabilize the economy?
2. Should monetary policy be made by rule rather
than by discretion?3. Should the central bank aim for zero inflation?
4. Should the government balance its budget?
5. Should the tax laws be reformed to encourage
saving?
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1. Should monetary and fiscalpolicymakers try to stabilize the
economy?
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` The economy is permanently working unstable,
and rise and fall irregularly.
` Policy can manage aggregate demand in order toput aside this permanent instability and reduce the
difficulty of economic fluctuations.
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` There is no reason for society to suffer through the
rapid growth in economy and difficulty in economy.
` Monetary and fiscal policy can stabilize aggregatedemand and, thereby, production and
employment.
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` Monetary policy affects the economy with long and
unpredictable lags between the need to act and
the time that it takes for these policies to work.
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` Fiscal policy falls behind because of the long
political process that conduct the policy of country
in spending and taxes.
` It can take years to propose, pass, and implement
a major change in fiscal policy.
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` Policy makers unintentionally make serious matter
of economic fluctuation rather than mitigate it.
` It might be desirable if policy makers couldeliminate all economic fluctuations, but this is not
a sensible and practical originally.
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2. Should monetary policy be madeby rule rather than by
discretion(free judgment)?
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` Discretionary monetary policy can suffer from
incompetence and abuse of power.
` There may be a discrepancy between whatpolicymakers say they will do and what they
actually do-called time inconsistency of policy.
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` Committing the Fed to a moderate and steady
growth of the money supply would limit
incompetence, abuse of power, and time
inconsistency.
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` An important advantage of discretionary monetary
policy is it can be changed according to the
circumstances.
` The policy which cannot be changed according to
circumstances will limit the ability of policymakers
to respond to changing economic circumstances.
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` The alleged problems with discretion and abuse of
power are largely based on imagination.
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3. Should the central bank aim for
zero inflation?
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` Inflation confers benefit to society, but it imposes
several real costs. Shoe leather cost
For eg
.Rather than withdrawing Rs
.4000 everyfour week, withdraw Rs.1000 per week.By doing these
you may keep your wealth in saving account and less in
wallet, where inflation gradually decrease its value.
Menu costs
means costs of price adjustment.
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` Reducing inflation is a policy with temporary costs
and permanent benefits.
` Once the disinflationary recession is over, thebenefits of zero inflation would continue.
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` Zero inflation is probably unattainable, and to get
there involves output, unemployment, and social
costs that are too high.
` Policymakers can reduce many of the costs of
inflation without actually reducing inflation.
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4.Should fiscal policymakers
reduce the government debt?
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` Budget deficits impose an unjustifiable burden on
future generations by raising their taxes and
lowering their incomes.
` When the debts and accumulated interest come
due, future taxpayers will face a difficult choice: They can pay higher taxes, enjoy less government
spending, or both.
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` By shifting the cost of current government benefits
to future generations, there is a bias against future
taxpayers.
` Deficits reduce national saving, leading to a
smaller stock of capital, which reduces productivity
and growth.
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` The problem with the deficit is it often seems
greater than in reality.
` The transfer of debt to the future may be justifiedbecause some government purchases produce
benefits well into the future.
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` The government owing money can continue to rise
because population growth and technological
progress increase the nations ability to pay the
interest on the debt.
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5.Should the tax laws be reformed
to encourage saving?
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` A nations productive capability is determined
largely by how much it saves and invests for the
future.
` When the saving rate is higher, more resources
are available for investment in new plant and
equipment.
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` The U.S. tax system discourages saving in many
ways, such as by heavily taxing the income from
capital and by reducing benefits for those who
have accumulated wealth.
` The result of high capital income tax policies are
reduced saving, reduced capital accumulation and
reduced economic growth.
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` Many of the changes in tax laws would benefit the
wealthy people. High-income households save a higher fraction of their
income than low-income households.
Any tax change that favors people who save will also
tend to favor people with high incomes.
` Reducing the tax burden on the wealthy would
lead to a less equal and to have equal rightssociety.
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` Raising public saving by eliminating the
governments budget deficit would provide a more
direct and equitable way to increase national
saving.
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` Advocates of rules for monetary policy argue that
discretionary policy can suffer from incompetence,
abuse of power, and time inconsistency.
` Critics of rules for monetary policy argue thatdiscretionary policy is more flexible in responding
to economic circumstances.
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` Advocates of active monetary and fiscal policy
view the economy as permanently unstable and
believe policy can be used to offset this inherent
instability.
` Critics of active policy emphasize that policy
affects the economy with a lag and our ability to
forecast future economic conditions is poor, both
of which can lead to policy being destabilizing.
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` Advocates of a zero-inflation target emphasize
that inflation has many costs and few if any
benefits.
`
Critics of a zero-inflation target claim thatmoderate inflation imposes only small costs on
society, whereas the recession necessary to
reduce inflation is quite costly.
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` Advocates of reducing the government debt argue
that the debt imposes a burden on future
generations by raising their taxes and lowering
their incomes.
` Critics of reducing the government debt argue that
the debt is only one small piece of fiscal policy.
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` Advocates of tax incentives for saving point out
that our society discourages saving in many ways
such as taxing income from capital and reducing
benefits for those who have accumulated wealth.
` Critics of tax incentives argue that many proposed
changes to stimulate saving would primarily
benefit the wealthy and also might have only a
small effect on private saving.
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Thanks