Stabilizing the Economy

Abstract

In the preceding three chapters we have examined the debate over the causes of and appropriate responses to unemployment, inflation, and the business cycle. Given the nature of our discussion, it should be evident that there is much controversy between macroeconomists over these important issues. The purpose of this present chapter is to draw together a number of themes addressed in Chapters 11–13 and to consider the ongoing debate over stabilization policy aimed at keeping output and employment at or near their full employment or natural levels by influencing the level of aggregate demand. In particular, we shall focus on the controversy of whether, in their conduct of macroeconomic policy, the authorities should be given discretion to change the strength of fiscal and monetary policy in the light of particular economic circumstances at the time, or whether monetary and fiscal policy should be conducted by rules.