REPLY 1 There are up and downsides to the monetarist and Keynesian viewpoints. The monetary policy emphasizes

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REPLY 1

There are up and downsides to the monetarist and Keynesian viewpoints. The monetary policy emphasizes the controlling of money inside the economy, whereas Keynesian economics would claim that higher government spending will speed up the recovery of the economy during recession. Keynesian economics uphold a mixed economy led by the private sector while being partially operated by the government; it does not view the government budget being unbalanced as a wrong thing, unlike the monetarist view where government should pursue a balanced budget. In Keynesian economics, wages can be sticky downwards causing unemployment, whereas the monetarist tends to focus on the supply side or natural rate of unemployment. I think that the government should use monetary and fiscal policy to keep the economy stable. In the past 10-20 years there has been recurring instability and large shifts in the economy; when managing policy, the government needs the flexibility that monetary and fiscal policy provides.

The Feds did not handle the financial crisis completely from the perspective of the Classicals but followed only a few parts of the classical methods. Areas, where the Classicals might have agreed with the Feds, were through the expansion of the Fed's balance sheet and the expansion of the monetary base to match the increase in demand for money. The Classical would have also agreed with the Fed's choice to lend to a vast number of borrowers for many different assets.

The Classicals would have disagreed with the Feds’ handling of the financial crisis when they bailed out giant firms like Citigroup and American International Group. They would have disagreed with increasing loan deadlines and payment of positive interest on surplus reserves. The Classicals viewpoint would have been to shield money stock from contraction while increasing money stock, in order to counterbalance drops in velocity. The Feds diverged from this perspective and chose to free credit markets and decrease the yield spreads, so that banks would return to lending.

This week I learned about comparing different economic theories and policy. Examining the contrast between Keynesian and monetarist perspectives was a great way to understand both ideas of thought in more depth. I also learned about current account and trade balance, trade barriers, and some of the elements that affect economic policy in other countries.

REPLY 2

1. Keynesians hey believe that free markets do not achieve full employment and price stability. Economists espouse this view plays a higher level of importance on aggregate demand, the sum of spending between household businesses and the government. They believe this is the most important driving factor in the economy. They advocate for using the school policy and monetary policy to stabilize the economy, rain in excess growth, and bolster the economy during downturns. Government intervention is seen as a positive despite some of the negative long-term effects of monetary policy and fiscal policy. Because the short-term benefits can be so significant and tangible they argue that forgoing him because of long-term risk would be foolish. And the unpredictability of the world makes long-term estimations of the economy very difficult regardless of government intervention so you may as well take the benefits while we can.

Monetarism holds the view that markets naturally move toward a staple center. This makes governmental meddling riskier. From this point of view, government influence can lead to instability in the economy and can cause the markets to behave radically. This philosophy is based on a preordained ideal. This makes it less flexible than Keynesians because changes in the world may lead to this “ideal” being inefficient.

2. The fed's tactic of flooding the market with liquidity aligns with classical views. Classicalists would also have agreed with increasing the supply of money and increasing government spending to inflate the economy is worth what classical philosophy prescribes. Classicalists may believe the fed did not go far enough. During the crisis, the fed lent a variety of assets to a variety of borrowers. This aligned with classical views however the collateral the loans were based on was questionable.

3. It does not surprise me that the Fed used classical views on approaching the problem of the financial crisis over the past few years. It also does not surprise me that the implementation was riskier than the doctrine may have prescribed. And I believe that the government has a vital role in maintaining the stability of an economy and that economy probably is not stable and efficient on the tongue. My reasoning for this is that people are not stable and efficient. People are with make up every aspect of an economy whether it be individuals businesses or governments. All are run by people. The market can only be as efficient as all the inefficiencies are all the pieces combined. People are willing to pay more than what is rational and willing to be paid less than what is national mean efficiency only survives in a rational mind and because we are not computers we do not always make rational decisions.