ezto.mheducation.co Chapter 24 Homework r Mohammad Jafari: ECON 102 - conect ECO
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ezto.mheducation.co Chapter 24 Homework r Mohammad Jafari: ECON 102 - conect ECONOMICS apter 24 Homework Question 4 (of 15) value 0.33 points As the problem of inflation grew in the 1970s, did Keynesian or Classical economics grow in importance? O Keynesian economics grew in importance because Classicals didn't have a model for inflation O Classical economics grew in importance because Keynesians didn't have a model for inflation. 0 Keynesian and Classical economics merged together O Neither Keynesin nor Classical economics grew in importance because they wer just theories. References eBook& Resources Worksheet Section: The Historical Development of Macro Learning Objective: 24-01 Discuss the history of macro, distinguishing Classical and 527 .Keynesian, macroeconomists.Explanation / Answer
Ans-As the problem of inflation grew in 1970 , Classical economic grew in importance because Keynesian didn't have a model for inflation. When the people think of the U.S. economy in the 1970s the following things are:-
According to keynKeyne theory, at the time, inflation should have had an inverse relationship with unemployment, and positive relationship with eeconomic growth. Rising prices should have contributed to econeecon growth. In 1970s , it was an era of rising prices and rises unemployment, the periods of poor economic growth could be the result of the cost push inflation of high oil prices, but it was unexplained by Keynesian economic theory.
The classical theory of inflation attribute sustained price inflation to excessive growth in quantity of money in circulation. For this reason, the classical theory is called the quantity theory of money. Classical theory of inflation explain how the aggregate price level gets determined through the interaction between money supply and money demand. The classical theory allows us to think about inflation without any reference. This is a big part of what makes the classical theory of inflation so useful. It recognized that unemployment may be high or low and interest rates may be rising or falling.
If the money supply is growing too fast, inflation result. It is also useful because it reveals inflation for what it truly is a debasement of the currency, an erosion in the purchasing power of money engineered through deliberate policy actions taken by bank. People believe classical theory of inflation because it enjoys more empirical support than any other theory in all economics except for the law of demand, which predict correctly that when the price of an individual good goes up, people tend to buy less of it.
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