Question

The school of thought that monetary policy should be the main tool of stabilization policy, that is skeptical about the use of fiscal policy, and that recognizes constraints on policy imposed by the natural rate of unemployment and the political business cycle is:

Group of answer choices

classical macroeconomics.

Keynesian macroeconomics.

monetarism.

the Great Moderation consensus.

Answer 1

Answer to the question:

Option c: Monetarism.

Explanation: The monetarists put emphasis on the onetary policy and stated that the fiscal policy only raises the prices in the economy in the long run and it is ineffective. But they stated that the monetary policy is effective and are capable of stimulating the economy. During the stagflation of 1970s the fiscal policy failed to stimulated the economy but the monetarists during that time criticized the keynesican economics and stated that it is ineffective in the long run.

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