Question

For each macroeconomic viewpoint, identify whether it is a position held by classical economists, Keynesian economists, or monetarists. If the viewpoint is shared by more than one group, check all that apply. Viewpoints Expansionary fiscal policy is either an unnecessary or ineffective response to a situation where output is below full employment. A decrease in aggregate demand will lead to only a temporary departure from full employment output. Because prices and wages are flexible, the economy will automatically adjust to full employment in the long run Classical Keynesian Monetarist

Answer 1

The first viewpoint was given by Monetarists. They considered monetary policy to be more effective than fiscal policy in overcoming recession in the economy. They considered that fiscal policy cannot work in the long run to cure recessions without an accommodating monetary policy.

The second viewpoint is given by Classical economics. They believed wage price flexibility will automatically lead to full employment in the long run and a decrease in aggregate demand in the economy is only temporary.

Answer 2

Expansionary fiscal policy is either an unnecessary or ineffective response to a situation where output is below full employment. (Classical, Monetarist)

A decrease in aggregate demand will lead to only a temporary departure from full employment output. Because prices and wages are flexible, the economy will automatically adjust to full employment in the long run. (Classical, Monetarist)