Question

Evaluate the views of ‘saltwater’ and ‘freshwater’ economists when discussing the appropriate policy responses to the crisis as a means of aiding recovery. As part of this exercise fully consider the role of fiscal policy and monetary policy.

Answer 1

The "Saltwater" is the economist from the east and west coast of US and these economists are in favor of government regulated economy than the free market economy in correcting the economy form the fluctuations.In particular universities such as Harvard, MIT, and Yele.

The "Fesh water" economist believes in the free market economy than the government regulation in the economic activities.The particular universities are Chicago School, Rochester.

There are two methods used to correct the economic fluctuations in the economy.

• Fiscal and Monetary policy

Both policies are effective when it moves the same direction and when compared to monetary policy it is Fiscal policy is more effective whereas monetary policy suffers from the limitation of liquidity trap situation.