Identify the various policy choices available when an economy experiences an inflationary or recessionary gap and discuss some of the pros and cons that make these choices controversial.

Consider an economy currently in recession. Which is NOT a policy move that could assist the economy, as discussed in class? Raising the money supply Raising government spending Lowering bank reserves Lowering interest rates

Explain whether policy makers should be more concerned about the economy going into a recession or facing high inflation and why.

Only Keynesian economics argues for active macroeconomic policy.    True  False

Should Monetary and Fiscal Policymakers Try to Stabilize the Economy? Explain.

Is an adverse supply shock likely to give rise to an inflationary gap or a recessionary gap? Why? (Hint: Draw a diagram.)

Do you think policy makers should attempt to stabilize the economy ? Why ?

Please explain with well-structured paragraphs on the basic principles of the New Keynesian Economics.

Who is John Maynard Keynes? What time period did he write?  What did he believe about the market’s ability to recover from a recession?

Use the AD/AS framework to explain the impact of stabilization policy to correct for a negative output gap in the short-run.