Question

which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy? group of answer choices monetarism mainstream economics rational expectations new classical economics

Answer 1

Mainstream Economics, especially the Keynesian school of thought, most closely aligns with the view that discretionary monetary policy effectively stabilizes the economy, contrasting with Neoclassical, Rational Expectations, and New Classical Economics perspectives.

Step-by-step explanation:

The economic perspective that views discretionary monetary policy as an effective tool for stabilizing the economy is Mainstream Economics, particularly the Keynesian viewpoint within this category. Keynesian economics emerged as a response to the challenges of the Great Depression which suggested the need for active fiscal and monetary policy to manage aggregate demand.

This is in contrast to the Classical and Neoclassical perspectives which argue for a "hands off" approach and are skeptical of the effectiveness of stabilization policies. The Neoclassical perspective believes that the economy will naturally return to full employment through market mechanisms over the long term, and that active fiscal or monetary policy is unnecessary and potentially inflationary.

Meanwhile, Rational Expectations and New Classical Economics hold that individuals have sufficient information to anticipate policy effects, negating the potential positive impacts of discretionary policies. Keynesian economics, part of the Mainstream Economics school of thought, maintains that government intervention can smooth out economic fluctuations and is necessary to address weak aggregate demand and the attendant cyclical unemployment.