(1a) Economists tend to fall into two distinct camps where government intervention in the economy is concerned. “Keynesian” economists favor active policymaking based on the Phillips Curve and NAIRU theories. These theories purport a possible trade-off between unemployment and inflation and suggest that appropriate policy can be enacted to guide us back to a soft landing when business cycles create havoc within the economy. Economists who align more with the “Classical” school would have a “leave it alone” (Laissez Faire) attitude and would oppose active policymaking. “Rational Expectations Theory” (a “new classical approach”) suggests that people figure out what will happen based on past policy changes, therefore rendering active intervention ineffective. In this week’s Discussion area, examine the following: In your opinion, which theory is better? Why?

(1a) Economists tend to fall into two distinct camps where government intervention in the economy is concerned. “Keynesian” economists favor active policymaking based on the Phillips Curve and NAIRU theories. These theories purport a possible trade-off between unemployment and inflation and suggest that appropriate policy can be enacted to guide us back to a soft landing when business cycles create havoc within the economy. Economists who align more with the “Classical” school would have a “leave it alone” (Laissez Faire) attitude and would oppose active policymaking. “Rational Expectations Theory” (a “new classical approach”) suggests that people figure out what will happen based on past policy changes, therefore rendering active intervention ineffective. In this week’s Discussion area, examine the following: In your opinion, which theory is better? Why?

 

 

 

answer:

Keynesian theory favours active participation of government to increase the growth and employment in the country. It suggests that fiscal policy can play active role in this regard. Classical approach of laissez faire will create market failures which can be corrected by government intervention only. In classical approach, players who have less private benefit but high social benefit will not operate in the market. Thus, government intervention is needed to let the functions which have high social benefit continue to operate.

Rather than ‘do nothing’ approach by government, it should actively try to fill in the gaps which private players cannot.

Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.