Note: This is post #122 in a weekly video series on basic economics.
Imagine that you’re the Fed and monetary policy is your domain, says Alex Tabarrok. The economy has been doing fine: inflation isn’t too high, GDP is growing at a reasonable rate. But then something happens. Consumer confidence drops. The economy shrinks. What do you do?
In this video by Marginal Revolution University, Tabarrok discusses the details of this scenario and how the Fed might respond. He looks at how the responses affect the long- and short-run aggregate supply curves and gives us a better understanding of when and how the Fed intervenes on a broad level when the economy is in trouble
(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)
Click here to see other videos in the Introduction to Economics series.