Question

The federal reserve pursued policies that most closely followed the theories of keynes and friedman. Both economists argued that aggregate demand could be influenced through policies. They believed that this could help the economy recover or grow. The fed seemed to follow keynes's theories by taking action to intervene. It also seemed to follow friedman's thinking by focusing on increasing the money supply through monetary policy. Which economists' theories did the federal reserve pursue?

1) Keynes
2) Friedman
3) Both Keynes and Friedman
4) Neither Keynes nor Friedman

Answer 1

The Federal Reserve pursued policies that aligned with both John Maynard Keynes's fiscal interventionism and Milton Friedman's steady money supply growth theory, reflecting a combination of Keynesian and Monetarist approaches.

Step-by-step explanation:

The Federal Reserve pursued policies that incorporated both John Maynard Keynes's and Milton Friedman's theories. Keynes advocated for government intervention through fiscal policy and deficit spending to promote economic growth. In contrast, Friedman emphasized a steady growth in the money supply and less discretionary power for the central bank to avoid economic instability. Fed's actions showed an overlap of Keynesian and Monetarist approaches though different in methodology.

The Friedman's influence was evident through the Fed's implementation of a monetarism policy in the late 1970s, which focused on controlling inflation by manipulating the money supply. Despite the initial support for Friedman's policies, the severe recession of the early 1980s led to a return to Keynesian practices.