Monday, February 2, 2009

Depression economics: Four options

Depression economics: Four options

WHEN an economy falls into a depression, governments can try four things to return employment to its normal level and production to its 'potential' level. Call them fiscal policy, credit policy, monetary policy and inflation.


Just to keep things tidy, those are the four main options. Everything else is somewhat superfluous.

Fiscal policy is area that needs to be focused upon and Brad DeLong tells us why. DeLong also claims that credit policy must figure into our equations, but in my estimation he means that there must be only enough stimulus in that area to regain our confidence in financial institutions.