Book: Krugman's Economics for AP*
Quotes of Book: Krugman's Economics for AP*
Jim Cramer's Mad Money is one of the most popular showson CNBC, a cable TV network that specializes in businessand financial news. Cramer, who mostly offers investmentadvice, is known for his sense of showmanship. But fewviewers were prepared for his outburst on August 3, 2007,when he began screaming about what he saw as inadequateaction from the Federal Reserve:"Bernanke is being an academic! It is no time to be anacademic. . . . He has no idea how bad it is out there.He has no idea! He has no idea! . . . and Bill Poole? Hasno idea what it's like out there! . . . They're nuts! Theyknow nothing! . . . The Fed is asleep! Bill Poole is ashame! He's shameful!!"Who are Bernanke and BillPoole? In the previous chapter wedescribed the role of the Federal Reserve System, the U.S. central bank.At the time of Cramer's tirade, BenBernanke, a former Princeton professor of economics, was the chairof the Fed's Board of Governors,and William Poole, also a formereconomics professor, was the president of the Federal Reserve Bank ofSt. Louis. Both men, because oftheir positions, are members of theFederal Open Market Committee,which meets eight times a year toset monetary policy. In August2007, Cramerwas crying outfortheFed to change monetary policy inorder to address what he perceivedto be a growing financial crisis.Why was Cramer screaming at the Federal Reserverather than, say, the U.S. Treasury-or, for that matter, thepresident? The answer is that the Fed's control of monetary policy makes it the first line of response to macroeconomic difficulties-very much including the financial crisisthat had Cramer so upset. Indeed, within a few weeks theFed swung into action with a dramatic reversal of its previous policies.In Section 4, we developed the aggregate demandand supply model and introduced the use of fiscal policyto stabilize the economy. In Section 5, we introducedmoney, banking, and the Federal Reserve System, andbegan to look at how monetarypolicy is used to stabilize theeconomy. In this section, weuse the models introduced inSections 4 and 5 to furtherdevelop our understanding ofstabilization policies {both fiscal and monetary}, includingtheir long-run effects on theeconomy. In addition, we introduce the Phillips curve-ashort-run trade-off betweenunexpected inflation and unemployment-and investigatethe role of expectations in theeconomy. We end the sectionwith a brief summary of thehistory of macroeconomicthought and how the modernconsensus view of stabilizationpolicy has developed. book-quote
