The main objective of stabilisation policy is to ensure that output levels are close to the potential while inflation and the current account deficit are kept at acceptable levels. A set of co-ordinated financial management of government resources is required. Baptiste (1980) identifies three schools of thought with respect to the application of financial management within an economy. The Keynesian, Monetarist and New Cambridge schools.

1. Evaluate the Keynesian perspective and the basis of their argument.
2. Similarly examine the Monetarist perception.
3. | Discuss why Monetarists argue that the manner in which the deficit budget is financed is critical.

Answer rating: 100% (QA)

Evaluating the Keynesian and Monetarist Perspectives on Stabilization Policy Keynesian Perspective Focus Aggregate demand management through fiscal policy Argument Left to themselves markets dont natu... View the full answer