Economist Prakken Says U.S. Fiscal Policy Unsustainable

The video discusses the Federal Reserve's role in managing fiscal policy, particularly in the context of the Jackson Hole conference and upcoming Congressional sessions. It highlights the unsustainable path of current fiscal policy and the potential macroeconomic benefits of adopting a sustainable approach. The discussion includes the concept of fiscal drag and the Fed's ability to counteract it by maintaining lower interest rates. The video also explores the impact of fiscal policy on equilibrium interest rates and emphasizes the importance of gradual fiscal adjustments to sustain economic growth and achieve long-term benefits.

What is the main concern regarding the current fiscal policy as discussed in the first section?

• It may lead to a higher standard of living.

• It is unsustainable and could undermine living standards.

• It is on a sustainable path.

• It will not affect the economy.

What is the study trying to assess in terms of fiscal policy?

• The short-term effects of tax cuts.

• The macroeconomic gains of sustainable fiscal policy.

• The role of Congress in fiscal policy.

• The impact of increased government spending.

How does the study suggest the Federal Reserve can offset fiscal drag?

• By increasing taxes.

• By reducing government spending.

• By printing more money.

• By keeping interest rates lower.

What happens to equilibrium interest rates if fiscal policy is put on a sustainable path?

• They fluctuate unpredictably.

• They decrease.

• They remain unchanged.

• They increase significantly.

What is the potential benefit of gradual fiscal adjustments according to the final section?

• It leads to immediate economic growth.

• It prevents cyclical downturns and maintains growth.

• It causes inflation to rise.

• It results in higher taxes.