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Essay / Research Paper Abstract
This 6 page paper examines different economic models in terms of how they view the effectiveness of stabilization policy. Keynesian economics is also discussed. Bibliography lists 5 sources.
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6 pages (~225 words per page)
File: RT13_SA231eco.rtf
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classical theories, to name a few camps. It is important to note that there is a great deal of dissension amongst various economists in terms of whether or not government
intervention should be a part of a viable and valid fiscal and monetary policy. When in the U.S. Alan Greenspan raises or lowers interest rates, he is manipulating the economy,
and there are those who see this as good and necessary, and those who wish he would just leave things alone. In fact, the economic camps are split when it
comes to the differences in terms of belief about expectations between monetarist and new classical models and their conclusions regarding the effectiveness of stabilization policy. First, a look at monetarism
will help to demonstrate just why Alan Greenspan feels it is valuable to intervene in the economy. The quantity theory of money is the foundation of monetarism (McLeish 610).
This theory says that the level of prices in one country is determined by the quantity of money in circulation at the time (610). The theory was developed into an
equation by Irving Fisher which was precisely MV=PT where M is the money supply and V is the velocity; P represents price level and T is indicative of the volume
of transactions (610). It is assumed that V is constant and T only changes slightly over time, as prices, or P, would depend on the money supply (M) (610).
This original version, though controversial was used for some time. Later, economists such as Milton Friedman and Alfred Marshall developed their own versions of this well known theory (610). How
are the latter theories different? That is a plausible question, one which matters to an extent, but the real dilemma in economics is whether or not the quantity theory of
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