Econ - Schools of Thought

CFA Level I
#1

At a recent symposium, “The Great Economic Debate of the Decade” several panelists were asked to state their opinions on aggregate demand and aggregate supply. Panelist 1 stated that he believed shifts in both aggregate demand and aggregate supply were driven primarily by changes in technology over time. Panelist 2 stated that she believed the focus of economic policy should be to directly increase aggregate demand by increasing the money supply or through fiscal policy. The views of Panelist 1 and Panelist 2 would best be described as which economic school of thought? Panelist 1 Panelist 2 A) Monetarist Classical B) Keynesian New Keynesian C) Classical Keynesian D) Supply side Monetarist

#2

C

#3

Yup!

#4

Increasing Money supply is Monetarist right ?

#5

Yup. If you need help with that, just remember this joke. A student once feel asleep in Milton Friedman’s class. Friedman, perturbed, awoke the student and called upon to answer the question he had just asked. The student replied “Well I didn’t hear the question, but the answer is ‘raise the money supply’”.

#6

My point was panelist TWO believed the focus of economic policy should be to directly increase aggregate demand by increasing the MONEY SUPPLY (Monetarist) So, isn’t D the correct answer ?

#7

C is correct. Classical just says leave it all alone. Great Depression is unexplained by this school of thought. Monetarist say increase money supply steadily.

#8

The key is “or through fiscal policy.” If I remember correctly, monetarists aren’t for government at all- They think that changes in money supply will be fully enough to correct the economy. Keynesians, on the other hand, believe we’re permanently at a low level of unemployment, and steady fiscal or monetary policy is needed to get us up to potential gdp.

#9

C! Any change in technology is classical, shifts in AD through both Fiscal & Monetary are Kenysian!

#10

Bump Definitely C, old school Keynesian…

#11

yeah, I got classical right off the bat, so I didn’t even need to read the second one, but old Milton Friedman wasn’t too keen on fiscal policy, so the second one answered itself.