It discusses the implications of Federal Reserve Chairman Alan Greenspan testimony in front of Congress. He said that the Federal Reserve Board would not increase interest rates when the meet again on May 7 because of they are unsure of the economy’s strength due to the recession earlier this year. So far they have lowered rates to 40 year lows 11 times last year to help ameliorate the recessionary gap in the economy. So far it seems like the fed’s actions have been successful in recovering from the crises but it is still uncertain whether our economy has reached natural equilibrium in unemployment and Real GDP. So as not to upset and swing the economy back into recession the Fed will avoid raising rates.

The economy first went into the recessionary gap as the Real GD

Graph 6 illustrate just this. A shift in the aggregate demand curve beyond the long run aggregate supply curve also the long range aggregate supply curve to shift to the right from LRAS2 to LRAS1 as the spending continues to cause the economy to grow this will lead to a new natural level of Real GDP at point 1.

In graph D the keynesian model is displayed in which an increase in investment causes spending to increase which also shifts the aggregate demand cure over to the right this is all assuming that the aggregate supply curve is horizontal. As corporations employ more workers for maintaining and producing in their factories the unemployment rate falls causing a problem clearly exemplified by the Phillips curve on graph F where the very low unemployment is associated with high inflation and high unemployment associated with low inflation.

P fell fro

Some topics in this essay:
Federal Reserve, Allan Greenspan, Reserve Board, Real GDP, Reserve Board’s, Federal Reserves, LRAS2 LRAS1, , Alan Greenspan, York Times, federal reserve, aggregate supply curve, real gdp, aggregate supply, recessionary gap, supply curve, reserve board, near future, graph keynesian, continue invest, rate falls, federal reserve board,