Answer to Question #285256 in Macroeconomics for Love

Question

In Figure 11-10( Dornbusch Fischer ) the economy can move to full employment by an expansion in either money or the full employment deficit . Which policy leads to E1 and which to E2 ? How would you expect the choice to be made ? Who would most strongly favor moving to E1 ? Versus E2? What policy would correspond to "balanced growth"?

Answer 1

There are contradictions between the two policies of ensuring full employment and pulling down inflation. Stimulating fiscal and monetary policy increases output and price, and the policy of reducing unemployment accelerates inflation.

Stimulating fiscal policy is Keynesianism, and monetary policy is monetarists. The policy of reducing unemployment is the new economic theory.

The best way to balance economic growth is to build macroeconomic models and Phillips curve equations that take into account many factors and conduct appropriate macroeconomic analysis.