Answer to Question #64118 in Macroeconomics for Tamoya

Question

Given the state of the economy and the causes of that state—think back to our online discussions a few weeks ago—what should be the appropriate mix of fiscal and monetary policy, from a Keynesian perspective? From a neoclassical perspective? Show each policy mix graphically using the AD/AS model. Which makes the most sense to you? Why?

Answer 1

Ideally, the policy mix should aim at maximizing growth and minimizing unemployment.
According to Keynesian economics, expansionary fiscal policy prevent a negative shift in aggregate demand by stabilizing employment among government employees and people involved with stimulated industries, but monetary policy is not very popular.
Neoclassical economists believe the market is always in equilibrium, macroeconomics focuses on the growth of supply factors and the influence of money supply on price levels.