Identify and summarize the central tenants of the four main theories about how to improve the economy.

Question

What will be an ideal response?

Answer 1

?Monetarism-The belief that inflation occurs when too much money is chasing too few goods. Monetarists suggest that the proper thing for government to do is to have a steady, predictable increase in the money supply at a rate about equal to the growth in the economy's productivity. When the economy goes into a recession, however, many monetarists think that the Federal Reserve Bank ("the Fed") should cut interest rates to make it easier for people and businesses to borrow money.
?Keynesianism-The belief the government must manage the economy by spending more money when in a recession and cutting spending when there is inflation. Economists here believe that the health of economy depends on what fraction of their incomes people save or spend. There is no need for the government budget to be balanced each year; what counts is the performance of the economy.
?Economic Planning-The belief that government plans, such as wage and price controls or the direction of investment, can improve the economy.?Supply-Side Tax Cuts-The belief that lower taxes and fewer regulations will stimulate the economy. The view of economists here is that what is needed is not more planning, but less government interference. In particular, sharply cutting taxes results in people saving and investing more. In turn, greater investments will then lead to more jobs, and if the earnings from these investments and jobs are taxed less, then individuals will be less inclined to shelter their earnings. The greater productivity will produce more tax revenue. Although at lower tax rates, the total national income to which these rates are applied will be higher.