Week 7 Homework

  • Consider the following quote: “For many years, the hands-off fiscal policies advocated by the classical economists held sway with the American government.  When times were hard, the prevailing response was to tough it out, awaiting the ‘inevitable’ turnaround. The lessons of the Great Depression and a booming wartime economy have since taught us, however, that government intervention is sometimes necessary and desirable — and that to an extent, we can take charge of our own economic lives.”  How would you classify the speaker in terms of school of economic thought?
  • In his 1982 Economic Report of the President, Ronald Reagan said, “We simply cannot blame crop failures and oil price increase for our basic inflation problem.  This continuous, underlying cause was poor government policy.” What policies might he have been referring to?
  • (6 points, 3 points each part) Many journalists blamed the economic policies of Reagan administration for the extremely high levels of unemployment in 1982 and 1983.
    • What school of thought describes his economic policies?
    • Do you agree that President Reagan’s economic policies were a failure in the context of the rest of the decade?
  • The day after the U.S. stock market crash of October 19, 1987, Federal Reserve Board Chairman Alan Greenspan issued the following statement: “The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”  What school of thought may prompt that statement? That is, which school (or schools) has a role for active monetary policy?


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