L9 Sch Of Thought

Question 1

Classical view? MACRO SOT

Answer 1

Econ self regulating -> full emp

New- 1. business cycle fluctuations efficient response for market econ with uneven pace of tech change
2. Unemp is voluntary, ppl accept the option
Change MWR and PL

Assume- 1. Perfectly flexible money wages
2. Flexible PL -SAS slope up

Say no to policy- Tax can slow expansions in emp, invest and tech prog (ADv) but

1. might not shorten recession
2. risk excessive inflation as MW^ PL^

Question 2

Monetarist view? MACRO SOT

Answer 2

Econ largely self regulating -> full emp
MP can adjust for SAS

Provided that:
1.MP not erratic
2.Money growth steady pace
Because quantity of money affect AD; cause inflation & recession
1. Unpredictable^ in SR
2. Effect has time lag -stimulus too late to end recession

Therefore risky- policy mistakes & unnecessary uncertainty.

Question 3

Keynesian View? MACRO SOT

Answer 3

Econ if left alone rarely full emp
Active FP MP help
Shorten recession
Too slow to adjust

Old- MWR sticky, cant v to restore full emp so lenghty recession. Assume workers have money illusion, but if PLv real wage maintain if lower MWR??

New- MWR and PL sticky so MWR cant be lowered as real wage wont maintain.
In SAS PL fixed, horizontal.
So to restore full emp only with output and employment. So FP MP is needed to help boost AD.

Question 4

Macroeconomics SOT

Answer 4

Views
Classical, new
Monetarist
Keynesian, new