Topic Twelve


Contemporary Economic Problems and the Role of Stabilization Policy


  • Define the essential characteristics of, and compare and contrast:
  • Classical Economics,
    Keynesian Economics,
    Monetarist Economics,
    Supply Side Economics.
  • Which school of thought seems most convincing to you? Why?
  • What is a recessionary gap? What is an inflationary gap?
  • What is fiscal policy?
  • Differentiate between discretionary fiscal policy and automatic stabilizers.
  • How can fiscal policy be used to correct recessionary and inflationary gaps?
  • What is the crowding out effect? How can the crowding out effect be avoided?
  • What is the Federal Reserve?
  • What determines the money supply?
  • How does the Fed control the money supply?
  • What are the three tools at its disposal and how do they work?
  • What is the money multiplier?
  • What is the demand for money? What determines the demand for money?
  • What is monetary policy?
  • What is the monetary mechanism; i.e. exactly how does monetary policy affect economic activity?
  • How can monetary policy be used to correct recessionary and inflationary gaps?
  • What is wrong with budget deficits?
  • How do budget deficits affect the economy in the short run and the long run?
  • What causes inflation? What causes unemployment? What are the different types of unemployment?
  • What can be done to reduce inflation and unemployment?
  • What is the Phillips Curve? What is the Natural Rate Hypothesis?
  • Can the government trade-off inflation against unemployment?
  • Does the government ever attempt to do this?

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