Question

In a comparison of macroeconomic views, identify whether each viewpoint is a position held by classical economists, Keynesian economists, or monetarists. If the viewpoint is shared by more than one group, check all that apply.

a. Expansionary fiscal policy is either an unnecessary or ineffective response to a situation where output is below full employment.
b. A decrease in aggregate demand will lead to only a temporary departure from full employment output.
c. Because prices and wages are flexible, the economy will automatically adjust to full employment in the long run.

Answer 1

Classical economists believe expansionary fiscal policy is unnecessary and that the economy self-corrects to full employment, a view monetarists share to an extent. Keynesian economists, however, advocate for active fiscal policy to manage aggregate demand and stabilize the economy.

Step-by-step explanation:

In comparing macroeconomic views to identify each viewpoint, we can attribute the following:

1. Expansionary fiscal policy is considered either an unnecessary or ineffective response to a situation where output is below full employment by classical economists. They believed that the economy would adjust to full employment on its own due to flexible prices and wages.
2. A decrease in aggregate demand will lead to only a temporary departure from full employment output according to both classical economists and monetarists. Both believe in the self-correcting nature of the market.
3. The idea that the economy will automatically adjust to full employment in the long run because prices and wages are flexible is a notion held by classical economists. They posited that intervention through fiscal or monetary policy is not only unnecessary but could also lead to inflation.

It's worth noting that Keynesian economists hold contrastive views, particularly regarding the first and third points, advocating for active fiscal policy to manage aggregate demand and stabilize the economy during both recessionary and inflationary periods.