University of Texas Disequilibrium and Government Intervention Discussion

The natural rate of unemployment for the U.S. economy

is estimated to be around 4.5%. A healthy, sustainable real GDP growth rate is estimated to be around

2.5%. An ideal rate of annual inflation is thought to be around 2%.

analysis: Assume that over the course of a year, the US economy experiences an unemployment rate that rises from 4% to 8%, a real GDP growth rate of negative 4%, and an inflation rate of negative 1%.

use these economic conditions in relation to the above goals as the context for the following

analysis.

Explain what the above data reveal about economic conditions and thoroughly explain how either

fiscal policy (both automatic and discretionary) or monetary policy could be used in response.

Thoroughly explain at least 3 arguments that could be made in opposition to the policy response

you explained.

Given both the policy and arguments against the policy you have explored, would you support the

usage of this policy in this situation? Thoroughly explain why or why not.