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Open Economy Economic Policies

Just looking for a few paragraphs for each question to get a discussion going.

Please provide documentation where necessary.

1)If you were having a conversation with a Keynesian and a Classical economist, and the conversation turned to why the economy is experiencing high unemployment and what the government should do about it, how would each economist explain unemployment and what policies would each advocate?

2)"The Fed should simply increase the money supply at the same rate that the full employment economy grows, and the government should desist from any stabilizing urges." What school of thought would make this suggestion, and how do economists of that school justify that prescription?

3)Testing procedures required by the US Food and Drug Administration raise the cost and price of drugs. Should we eliminate such requirements in order to ease inflationary pressures? How about the regulation of hot dog content?

4) Based on the knowledge you have gained from this course, what policies (monetary, fiscal or a combination of these) would you recommend for the current state of the U.S. economy?

Solution Preview

Let me know if you need further clarification or help.

Keynesian unemployment claims unemployment is cyclical. This means that government must stimulate the economy in ways that increase the need for workers. Since companies are prone, during these times, to want to produce income for shareholders more than products, then the government must provide expansion plans to encourage employment, provide financial stimulus, and publicly fund job creation.

Classical theories say that the market controls unemployment and that the outside intervention does not help or hinder the process, only the market fluctuations. Bureaucratic intervention such as laws, minimum wage laws, taxes, and regulations might actually harm the process. Government should do nothing since the law of supply and demand will create the need for full employment and this will prevail over the long term.

http://www.econlib.org/library/Enc/KeynesianEconomics.html

http://www.economicthought.net/blog/?p=2799
2. "The Fed should simply increase the ...

Solution Summary

A discussion on economics of unemployment based on Keynesian, Classical, and monetarist theories. Plus discussion on inflationary rates affected by drug testing requirements.

$2.19