Question

Explain Romer's analogy between monetary policy and blood doping and between fiscal policy and a taper.

Answer 1

1. blood doping(saving blood week s before the race and reinjecting just before the race) refers to the pump priming,monetary boost the government gives in the form of increased money supply during a reduced spending in the economy. The central bank controls the money supply during booms, encouraging more saving and on the onset of depression increases the money supply encouraging spending.

2.Tapering refers to the phenomena of using government spending (fiscal policy) in order to control or encourage domestic spending in the economy. The govt spending reduces in intensity as the economy is nearing the boom of a business cycle and the govt spending increases as there the economy goes towards a depression.