Macroeconomics question!!?
incomes policy.
rational expectations theory.
supply-side theory.
adaptive expectations theory.
Keynesian theory.
Answer:
Let's see.
The incomes policy deal with controlling income and wages to curb inflation but I don't think it does anything about money supply.
Rational expectations theory is used to forecast inflation.
Adaptive expectations theory is used to forecast inflation by using errors made in the previous year's forecast.
Keynesian Theory - Keynes was an advocate for using money supply to affect change in fighting inflation but not by holding it constant.
Supply-side theory - This is the likely one. The supply-siders believe in keeping the money supply constant or low because they believe the government does more harm than good. Unlike the Monetarists they believe that cutting taxes could raise GDP which would in turn raise tax revenues and balance the budget.
not sure..none of them sound quite right.
Rational expectations. (Strictly speaking it is rational expectations neoclassical). There is a one-for-one relation between money supply and price level, unless monetary authority can exploit asymmetric information. But it cannot do so systematically because people figure out what they are doing on the average. So they can only do this unsystematically, creating deadweight burdens from unpredictable inflation. Solution: steady and predictable money growth.
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