Making the Switch From Monetary to Fiscal Policy

The video discusses the current economic situation, emphasizing the need for the Federal Reserve to adjust its policies even if the economy falters. It highlights that monetary policy is not the solution at this point, and fiscal policy should be prioritized. The discussion also touches on the Fed's credibility issues, inflation rates, and the importance of maintaining well-anchored inflationary expectations. The risks of an overly accommodative monetary policy, such as misallocating credit, are also addressed, with fiscal policy being suggested as a better tool.

What is the primary focus of the Federal Reserve when the economy is stable?

• Maintaining monetary policy

• Increasing interest rates

• Reducing government spending

• Adjusting fiscal policy

Why might the Fed face credibility issues?

• As a result of increased government debt

• Owing to low economic growth

• Because of inflation rates above target

• Due to high unemployment rates

What is the Fed's target inflation rate on the PCE measure?

• 2%

• 1%

• 3%

• 4%

What risk is associated with maintaining an ultra-accommodative monetary policy for too long?

• Increased unemployment

• Misallocation of credit

• Anchored inflationary expectations

• Deflation

Which policy is suggested as a better tool than monetary policy in the current economic context?

• Fiscal policy

• Monetary policy

• Environmental policy

• Trade policy