TOPICS
Strengths and
Shortcomings of monetary policy.
Compare Mainstream and Monetarist
views:
- Causes of
Macroeconomic instability
- Does the economy self-correct?
- Rules or Discretion?
OUTCOMES
Know the strengths and
shortcomings of monetary policy.
Describe two alternative
perspectives on the causes of macroeconomic instability:
those held by Mainstream (New Keynesian) economists and
the Monetarists (New Classical)
Explain what the equation of
exchange is and how it relates to
"monetarism."
Discuss why the Monetarists (New
Classical) believe the economy will "self-correct" from
aggregate demand and aggregate supply shocks. Explain the
view of self-correction held by Mainstream (New
Keynesian) economists.
List three reasons why a higher
wage could result in greater efficiency (efficiency
wage).
Identify and describe the
variations on the debate over "rules" versus "discretion"
in conducting stabilization policy.
Mainstream (New
Keynesian) economists believe monetary policy is not
very effective but it should be used to accommodate
fiscal policy. Monetarists (New Classical) economists
believe monetary policy is very effective but should
not be used with discretion. EXPLAIN.
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