The volatility of economic activity in the United States has decreased over time
ID: 1139593 • Letter: T
Question
The volatility of economic activity in the United States has decreased over time and especially since World War Il Economists refer to this as the Great Moderation, and during this period expansions have gotten longer while recessions have gotten shorter 1. What are some causes of this Great Moderation (reflect on current economics in the past 10 years)? Economists have three possible theories for the cause of the Great Moderation, structure of the economy good policy, and good luck Structural changes in the economy can reduce volatility. Advances in information technology and communications allowed firms to be more efficient in the production process, which reduces volatility. More open international trade and capital flows may have helped stabilize the economy, Good monetary policy may be another reason for the Great Moderation. Economists think monetary policy was weaker before the Great Moderation and stronger during Economists also think the United States may have been lucky that shocks were than the shocks hittinge the economy during the 1960s and 1970 2 Do you think this pattern can continue in the future (for the next 10 to 20 years)? (Support your answers with academic articles from the HCCC library website.) The Great Moderation was caused by structural change like advances in the technology: improved macroeconomic policies, which helped moderate, the large boom and bust cycles. We currently make advances in technology, which improves the way we produce things. Information technology is improving every year making it more efficient to produce and monitor production. The combination of improved monetary policy, which helped lower and stabilize inflation, and better inventory management techniques may have contributed importantly to lower GDP volatility (Summers 2005). In the next 10 to 20, with continued advances in technology and economic policies, you can expect to see this pattern to continue. 3 Can you think of any potential drawbacks to this development, or alternative changes that will need to be made in the future to continue the stability within the economy? Explain if these issues are even possible or hypothetical within your answer, and why Our advancements in information technology and communication allows us to make accurate decisions and become more efficient at the production process. With accurate information we are able to make better economic policies, which helps us keep the economy stabilized. This is something economist and frms didn't have in the past. We are able to adjust when we have a recession and recover much faster than we could've in the past.Explanation / Answer
Q-1
In addition to the three broad contour of moderation, the following points can also be contemplated:
Q-2
The trend seems to continue in coming decade provided the following points are taken into due consideration:
Q-3
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