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If the unemployment rate is increasing and real economic growth is expected to decrease within the...

If the unemployment rate is increasing and real economic growth is expected to decrease within the next four quarters. Would you adopt a Keynesian or Monetarist approach to formulating policy? Which approach would be more applicable? Would a combination of the two approaches work? Why or why not?

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Answer #1

Keynesians say that inorder to stabilise economy fiscal policy is useful . It emphasises on increased government spending during recession to bring back the economy out of it. These views have been strongly criticised my monetarists who vouch for expansionary monetary policies citing the reason that increased government will cause "crowding out " or inflation hence fiscal policies are not useful.

Thus we can say that in formulating policies to combat unemployment and recession , just Keynesian or monetary approach or their combinations won't help in full. Supply side economics is emphasized more in recent times as a handy tool to fight recession and reduce unemployment.

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