a) State, compare and contrast policy suggestions by the Keynesian School and the Monetarist School to reduce problem of macroeconomic instability and unemployment in a market capitalist economy.

b) For each of these schools, provide and discuss one specific example (including the time period) from the U.S. economic history in which the theories were adopted as government policies and helped reduce instability in the economy. Be specific about your example, explain the policy that was implemented using tools of monetary and fiscal policy that we cover in class.

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Hubert KochLv2

2 Apr 2019

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Our last discussion question for this course is a fitting one since it seeks to cap off this introductory look at the macro. by assessing the relevant theory that has been developed to date. As your text indicates, there are two broad schools of macroeconomic thought that have been competing for the public mind over the last few decades. The Keynesian, or Mainstream view, sees the economy as being prone to shocks, and is concerned primarily with achieving full employment, and seeks to use government intervention (primarily activist fiscal policy) at boosting aggregate demand to achieve that objective. The Classical School (including the Monetarist branch of that school) sees the economy as being mostly self-correcting, and is more concerned with macroeconomic stability particularly price stability, and prefers monetary policy over fiscal policy in achieving this goal. Although there has been a fair amount of consensus as to some of the major items of analysis, there still remain some controversies, particularly with regard to whether government policy is even effective at managing the macroeconomy. What do you think of these divergent views as to government policy? Has one side of this debate won the majority of the argument here, or do both sides have points in their favor? In either case, though, are there times when one set of theories is called for, and then times when the other is?

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