From the late 1980s through 2007, inflation remained fairly tame--a period known
ID: 1221298 • Letter: F
Question
From the late 1980s through 2007, inflation remained fairly tame--a period known as The Great Moderation. Mainstream economists argued that the problems of macroeconomic instability and stagflation had been solved. However, the Global Financial Crisis proved that macroeconomic instability was not solved or conquered.
Paul Krugman wrote an article in September 2009 with the title “How did economists get it so wrong?” Did all economists get it wrong? Explain.
Why are market economies unstable? Based on your explanation, what should policymakers do to prevent another major crisis?
Explanation / Answer
Part-A
Almost all economist are get wrong against the glabal financial crisis of 2007-08. According to paul krugman the economists are fails to predict the exact timings of the recessions. After the great moderation periode, paul krugman easily predict that the breakdown of the modern industrialized economy. krugman attcaked the all economist by two important goals. first, the financial market are inefficient fundamentally due to irrationally investors. Second, to promote more fiscal stimulas. He believed that the stock prices are totally disapproves market efficiency.
Part B
we know that economic instablity means that a nation experiencing financial struggle due toinflation, unemployment, and rising level of prices. The financial instability creates the low level of growth of the economy. In the recent times many of the policies are used by the central bank and government to prevent another major finacial struggle.
1. Macro prudential regulations: This policy are used to maintaining stability of the financail system and health of the individual firms.
2. The policy makers are should observe the recent trends in the economy and studied it relaible and timely
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