Taylor on Fiscal and Monetary Policy

1. Listen to the assigned Podcast when we cover the related topic in class.
2. Complete the guided listening assignment. (Guidelines provided in document named “Taylor_Policy”)

Podcast link: http://www.econtalk.org/archives/2011/07/taylor_on_fisca.html

ECON 322 – Intermediate Macroeconomics Amanda M Michaud
Taylor on Fiscal and Monetary Policy
Due Date: See Course Announcements
This podcast describes theories of fiscal and monetary policies to alleviate recessions. This
assignment will guide you through analyzing these arguments in the simple two period model
of household and firms studied in class.
1. In a sentence, what is Fiscal Policy? Give one example each of a fiscal policy targeted at
household and a fiscal policy targeted at state governments.
2. Describe, in two sentences, the Keynesian theory of how fiscal policy can alleviate recessions. Explain why Taylor thinks these policies were ineffective. Illustrate this argument
using the appropriate theory and accompanying graph from class. (Hint: Ricardian).
3. What is Quantitative Easing1
: what was the goal and how was it supposed to accomplish
this goal? Modify the two-period credit model to illustrate how this works. You should
provide an appropriate graph.
4. Hypothesize why QE could be ineffective using economic reasoning.
5. What does the author proscribe for future policy? What do you think?