Alternative Views in Macroeconomics

Alternative Views in Macroeconomics

When
Bill Clinton took office in January 1993, he faced two major economic problems:
a large federal budget deficit and high unemployment resulting from a very slow
recovery from the recession of 1990 to 1991.
In his first state of the union message, the president called for
spending cuts and substantial tax increases to reduce the deficit. Most of
these proposed spending cuts were in the defense budget.The following day Alan Greenspan, chair of
the Federal Reserve Board of Governors, signaled his support for the
president’s plan.Man y elements of the
president’s original plan were later incorporated into the deficit reduction
bill passed in 1993.

A)
Some
said at the time that without the Fed’s support, the clinton plan would be a
disaster.Explain this argument

B)
Supply-side economists and monetarists were very
worried about the plan and the support it received from the Fed. What specific
problems might a monetarist and a supply-side economist worry about?

C)
Suppose you were hired by the Federal Reserve
Bank of St. Louis to report on the events of 1995 and 1996 What specific
evidence would you look for to see whether the Clinton plan was effective or
whether the critics were right to be skeptical?

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