Question: From 2000.3 through 2002.2, real growth slowed down substantially in the US economy, which was in a recession during most of 2001. Over that two-year period, real growth averaged 1.0%. According to Okun's Law, the unemployment rate should have risen 1% per year, for a total of 2%. In fact, the unemployment rate rose from 3.9% to 5.9% during that period, exactly what would have been expected. In that sense it was a ‘‘normal'' recession. Yet repeated doses of fiscal and monetary stimulus failed to reduce the unemployment rate after the recovery got under way.
(A) What measures of monetary stimulus were used?
(B) What measures of fiscal stimulus were used?
(C) Why did the economy fail to respond very much to these measures?
(D) To what extent did institutional changes in the economy retard the recovery?
(E) What parallels can be drawn between this situation and the decade-long slowdown in the Japanese economy that started in 1992?