Contrast the Keynesian and Monetarist views on the effectiveness ...

[geodog55]

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy.

Question 2

Because of the automatic stabilizers, a decline in the level of economic activity will cause:
 a. a reduction in tax revenues collected.
  b. an increase in government expenditures.
  c. a greater budget deficit.
  d. all of these.

[hanadaa]

Answer to Question 1

Keynesians believe the aggregate supply curve is rather flat, and the monetarists view it as relatively vertical. As a consequence, expansionary fiscal policy is much more inflationary to Monetarists. In addition, the Monetarists believe the crowding out effect of expansionary fiscal policy is much larger than that argued by Keynesians, rendering fiscal policy ineffective. Keynesians, however, argue that fiscal policy is not only effective because of a small crowding out effect, but fiscal policy is more effective than monetary policy in stabilizing the business cycle.

Answer to Question 2

d

[geodog55]

Thank you

[hanadaa]

No problemo