Assignment:
This week we turn our attention to Europe and the European Central Bank (ECB), in light of what we learned in the recent Chapter 13: Fiscal Policy, the European austerity cuts in government spending, and Chapter 15: Monetary Policy, and bank closures in Greece, and this week's chapters 16 and 17. The recession in Europe has been unfolding all year.
Some background: The economic recession of 2007 hit Europe, as well as the US. In the US, the Fed began pursuing expansionary monetary policy (decreasing the Federal funds) rate in 2007 as the crisis in financial markets unfolded. The Fed has been pursuing expansionary Monetary Policy, generally increasing the money supply and lowering interest rates, due to economic data indicating very weak economic growth as the US economy struggled to recover from the financial crisis. Alternatively, the Europeans chose austerity measures: cutting spending to reduce debt. While the US economy expanded, growth in the European Union remained slow, or contracted.
Assume you are a member of the ECB in charge of policy choose a side: maintain interest rates or further easing in the EU. Recently, the EU decided to employ expansionary monetary policy. What has been the result? After reviewing the most recent economic indicators available for the European Union, are you concerned more about the weak expansion, or overall debt? What policy (Fiscal Policies, Quantitative Easing, or target interest rate) would you recommend for the EU? Choose a side (contractionary: concerns over debt; or expansionary: concern over slow growth) and defend it with economic theory and data. Consider the Phillips Curve when deciding who would be impacted (the unemployed, retirees on pensions, young workers, baby boomers nearing retirement, for example) by your policy and the expected impact on inflation and/or unemployment.