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section 6

Module 30 Long-run Implications of Fiscal
Policy: Deficits and the Public Debt
Module 31 Monetary Policy and the Inflation,
Interest Rate
Module 32 Money, Output, and Prices in the
Long Run
Module 33 Types of Inflation, Disinflation, Unemployment,
and Deflation
Module 34 Inflation and Unemployment: The
Phillips Curve and Stabilization
Module 35 History and Alternative Views of
Macroeconomics
Module 36 The Modern Macroeconomic
Consensus Policies
Economics by Example:
“Will Technology Put Us All Out of Work?”

Jim Cramer’s Mad Money is one of the most popular shows Why was Cramer screaming at the Federal Reserve
on CNBC, a cable TV network that specializes in business rather than, say, the U.S. Treasury—or, for that matter, the
and financial news. Cramer, who mostly offers investment president? The answer is that the Fed’s control of mone-
advice, is known for his sense of showmanship. But few tary policy makes it the first line of response to macroeco-
viewers were prepared for his outburst on August 3, 2007, nomic difficulties—very much including the financial crisis
when he began screaming about what he saw as inadequate that had Cramer so upset. Indeed, within a few weeks the
action from the Federal Reserve: Fed swung into action with a dramatic reversal of its previ-
“Bernanke is being an academic! It is no time to be an ous policies.
academic. . . . He has no idea how bad it is out there. In Section 4, we developed the aggregate demand
He has no idea! He has no idea! . . . and Bill Poole? Has and supply model and introduced the use of fiscal policy
no idea what it’s like out there! . . . They’re nuts! They to stabilize the economy. In Section 5, we introduced
know nothing! . . . The Fed is asleep! Bill Poole is a money, banking, and the Federal Reserve System, and
shame! He’s shameful!!” began to look at how monetary
Who are Bernanke and Bill policy is used to stabilize the
Poole? In the previous chapter we economy. In this section, we
described the role of the Federal Re- use the models introduced in
serve System, the U.S. central bank. Sections 4 and 5 to further
At the time of Cramer’s tirade, Ben develop our understanding of
Bernanke, a former Princeton pro- stabilization policies (both fis-
fessor of economics, was the chair cal and monetary), including
of the Fed’s Board of Governors, their long-run effects on the
and William Poole, also a former economy. In addition, we intro-
economics professor, was the presi- duce the Phillips curve—a
dent of the Federal Reserve Bank of short-run trade-off between
St. Louis. Both men, because of unexpected inflation and un-
their positions, are members of the employment—and investigate
Federal Open Market Committee, G. Paul Burnett/The New York Times/Redux the role of expectations in the
which meets eight times a year to economy. We end the section
set monetary policy. In August with a brief summary of the
2007, Cramer was crying out for the history of macroeconomic
Fed to change monetary policy in thought and how the modern
In August 2007, an agitated Jim Cramer demanded
order to address what he perceived that the Fed do something to address the growing consensus view of stabilization
to be a growing financial crisis. financial crisis. policy has developed.
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