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EconDebates Online

EconDebates Online keeps you informed on today's most crucial economics policy debates. Each EconDebate, created by John Kane (SUNY-Oswego), provides a primer on the issues and links to background information and current, in-depth commentaries from experts around the world. Review the brief introductions and, for EconDebates of interest, select the full debate.

Monetary Policy



Is There A New Economy?

Full Debate


The rate of growth of productivity in the U.S. economy remained relatively low in the 1980s and early 1990s. Real wages fell in many industries during this period. Many economists argued that structural changes in the economy had resulted in a natural rate of unemployment that was over five percent. The late 1990s, however, provided a very different economic situation in which a more rapid rate of productivity growth resulted in higher real wages throughout the economy. This increase in productivity growth was accompanied by relatively low inflation and a rather substantial decline in the unemployment rate (reaching a low of 3.9% in April 2000). This change has been so dramatic that many have argued that the U.S. now has a "new economy" in which the old rules no longer apply. It is generally argued that this "new economy" is the result of the growth of the internet and an expansion of global competition.

Does dollarization benefit developing countries?

Full Debate 

Technological advances allow society to produce more output from the existing mix of resources. These advances may take the form of less costly methods of producing existing output or may result in the production of new (or substantially improved) commodities (such as DVD players, HDTV, anti-lock braking systems, and similar innovations). Society clearly gains from the production of either more output or more highly valued output. But, how do these technological advances affect employment?

Should the Fed pursue a fixed policy rule?

Full Debate 

Until the Great Depression, most economists argued that the government should provide a stable economic infrastructure, but should not engage in attempts to stabilize the economy. Classical economic models suggested that the economy was self-equilibrating and tended to move toward a full-employment equilibrium relatively rapidly. These models suggested that there was no need for governments to engage in activist fiscal or monetary policies. The experience of the Great Depression, however, caused many economists to re-evaluate these models and policy recommendations.

Will the European Monetary Union succeed?

Full Debate

Most of the countries in Europe are participating in a bold economic experiment in which national currencies will be replaced by a common currency (called the Euro) by the year 2002. In May 1998, decisions were made on which countries were eligible for participation in the European Monetary Union. A European Central Bank was created in 1998 that is charged with coordinating monetary policy for the EU. Since January 1, 1999, the Euro has been used for all foreign exchange operations in the participating countries. Euro banknotes and coins will begin to circulate on January 1, 2002 and will completely replace national currencies by July 1, 2002 (existing national currencies will cease to be legal tender in the participating countries on or before this date).

Should U.S. financial markets be deregulated?

Full Debate 

The Glass-Steagall Act has been the subject of controversy between advocates of laissez-faire and those who prefer more government regulation. Critics of the Act contend that the separation of commercial banking from investment banking is unnecessary and harmful to the competitiveness of the U.S. financial services industry in the global marketplace. Conversely, the advocates of regulation fear a new financial crisis that could replicate the Great Depression. Such critics of deregulation often cite the S & L crisis of the 1980s as evidence of the need for this separation.

Should the Federal Reserve aim at a zero inflation policy?

Full Debate 

Virtually all economists agree that high inflation rates are disruptive. Economies experiencing double-digit inflation rates tend to have lower growth rates than economies experiencing lower rates of inflation. This is due, in large part, to the increased uncertainty about future income and prices that accompanies higher inflation rates. Thus, most economists agree that inflation rates should be relatively low. There is much less consensus about whether an inflation rate of 0% is better or worse than an inflation rate of 3%.

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