Business cycles: phases, indicators, measures, economic evolution, outlooks

The Two Branches of Macro-Economic Theory

Thinking like a Macroeconomist:

John Maynard Keynes and Milton Friedman

Macroeconomics is perhaps the most divisive area of economics when applied to political decision making, and macroeconomists divide themselves into different schools of thought. Two of the biggest camps are the Keynesians and the Monetarists. Keynesians and post-Keynesians follow the theories of John Maynard Keynes, the most-celebrated economist of the 20^th century who proposed that government stabilize the economy with the use of fiscal policy. Monetarists, on the other hand, follow the teachings of Friedrich Hayek. For this assignment do some research on the ideas of Keynes and Hayek. Focus on the “big picture” of what their main ideas are and how they have influenced policy makers. Then write a 4- to 5-page paper addressing the following questions:

• Discuss the policies that Keynes and Hayek advocated regarding how the federal government should manage the economy.

• What are the major differences between each school of thought.

• Based on your answer to question #1a, which of the two economists would you agree with more? Explain.

1. Read Case in Point 3: Steering on a Difficult Course in section 17.3 of the online text.

• Why did people believe the difficulties Asian economies were experiencing in 1997–1998 might bring a recessionary gap to the United States?

• In dealing with the recession of 2008 why is it important for the Fed and Congress to coordinate monetary and fiscal policy measures?

• Compare the rationale of the Reagan administration for the 1981 tax reductions with the rationale behind the Kennedy–Johnson tax cut of 1964, the Bush tax cut of 2001, and the Bush tax cut of 2003.

Assignment Expectations

Length: 4-5 typed and double-spaced pages.

In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:

• Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.

• Your ability to apply the concepts and knowledge learned in this course to formulate your own ideas about resolving economic difficulties.