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Business cycles: phases, indicators, measures, economic evolution

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1. a. Discuss the policies that Keynes and Hayek advocated regarding how the federal government should manage the economy. What are the major differences between each school of thought.

b. Based on your answer to question #1a, which of the two economists would you agree with more? Explain.

2a. Why did people believe the difficulties Asian economies were experiencing in 1997-1998 might bring a recessionary gap to the United States?

3. Compare the rationale of the Reagan administration for the 1981 tax reductions with the rationale behind the Kennedy-Johnson tax cut of 1964, the Bush tax cut of 2001, and the Bush tax cut of 2003.

please include sources

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Solution Summary

The answer to this problem explains business cycles and policies developed to address them . The references related to the answer are also included.

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1.a According to Keynes state intervention was required to reduce the boom and bust cycles of economic activity. He recommended the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. According to Keynes aggregate demand determined the overall level of economic activity and inadequate demand could lead to periods of high unemployment.

In contrast Hayek argued that there was no way in which the government through central planning could make a rational decision of putting a resource here or there because there was no price system to guide the government. According to Hayek less government intervention meant more economic freedom. If people are free to choose the economy runs more efficiently.

The major differences between the schools of thought are that Hayek says there should be no government intervention whereas Keynes advocates government intervention to reduce unemployment during ...

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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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