How did economist Abba Lerner use the analogy of a car on a highway to depict his view of macroeconomic stability? How did economist Milton Friedman modify this depiction?

Question

What will be an ideal response?

Answer 1

Lerner used the analogy of a car on the highway without a steering wheel to depict the mainstream view of instability in the economy. He argued that without a steering wheel (discretionary fiscal and monetary policy) to guide the car’s movements, it would keep banging from side to side against the guard rails of the highway.
Friedman modified this image to fit the monetarists’ view of macroeconomic instability, arguing that the car would drive straight without the jarring influences of backseat jerks in monetary policy. According to Friedman, monetary policy was a destabilizing force rather than a stabilizing policy as Lerner argued.