This lecture will examine some of the debates surrounding the use of fiscal and monetary policy. We will start with a brief review of the Keynesian view of business cycles and appropriate government policy. Then we move on to some alternate views, including monetarism, the new classical macroeconomics, and supply-side economics. Upon completion of this lecture, you should understand and be able to answer these key questions:
1. Does the velocity of money refer to a speeding armored car filled with cash?
2. Does a constant velocity of money mean that money is not moving or moving at a constant rate of speed?
3. Are monetarists people that love money more than life itself?
4. What are rational expectations and how realistic is it to think people have them?
5. Did the Reagan Administration promote supply-side economics?