macroeconomic stability
Topics on Economics
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Keynesian approaches in achieving long run macroeconomic stability
The two schools of economic thoughts have different perspectives on how macroeconomic stability can be achieved. Keynesian economics became prominent when John Maynard Keynes introduced the concept of active participation of government in stabilizing the economy. This was because the private sector alone was not able to sustain stability due to inefficiencies in the free market philosophy that was the premise of classical economics.
Keynes advocated two important policy models that would ensure continuous macroeconomic stability and is based on interest rate policies, tax policies and spending during different times to smoothen the business cycles which are responsible for macroeconomic instability (Roncaglia, 2011). These policies are known as fiscal and monetary policies and its objectives are to ensure stable prices, reduced/stable inflation rates, employment and production. Keynesian theorists can achieve macroeconomic stability by use of expansionary fiscal policies during economic downturns like in 2008.
Interest rates should also be lowered to increase money supply and consequently increase the aggregate demand. The two Keynesian approaches help stimulate the aggregate demand during economic crisis. During times of boom, interest rates should be increased and taxes increased in order to reduce the money supply in the economy to avoid runaway inflation. Keynesian economic policies ensure that aggregate demand, employment, prices and production are maintained at stable levels with minimum fluctuations.
Keynesian theorists also have various ways of achieving this goals through both the government and the central banks which have the mandate to use such policies.
Monetarists approach in achieving macroeconomic stability
Monetary theorists subscribe to the monetarism concepts which consider
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Subject
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Keynesian approaches in achieving long run macroeconomic stability
The two schools of economic thoughts have different perspectives on how macroeconomic stability can be achieved. Keynesian economics became prominent when John Maynard Keynes introduced the concept of active participation of government in stabilizing the economy. This was because the private sector alone was not able to sustain stability due to inefficiencies in the free market philosophy that was the premise of classical economics.
Keynes advocated two important policy models that would ensure continuous macroeconomic stability and is based on interest rate policies, tax policies and spending during different times to smoothen the business cycles which are responsible for macroeconomic instability (Roncaglia, 2011). These policies are known as fiscal and monetary policies and its objectives are to ensure stable prices, reduced/stable inflation rates, employment and production. Keynesian theorists can achieve macroeconomic stability by use of expansionary fiscal policies during economic downturns like in 2008.
Interest rates should also be lowered to increase money supply and consequently increase the aggregate demand. The two Keynesian approaches help stimulate the aggregate demand during economic crisis. During times of boom, interest rates should be increased and taxes increased in order to reduce the money supply in the economy to avoid runaway inflation. Keynesian economic policies ensure that aggregate demand, employment, prices and production are maintained at stable levels with minimum fluctuations.
Keynesian theorists also have various ways of achieving this goals through both the government and the central banks which have the mandate to use such policies.
Monetarists approach in achieving macroeconomic stability
Monetary theorists subscribe to the monetarism concepts which consider