 One of the most influential economists of 20’th century.  Believed only the government is large enough to offset changes in investment spending.

 A change in investment spending will have a magnified effect on total spending  When a change in investment spending is caused by a change in overall spending, a downward economic spiral may begin  Investment spending is a multiplier..about 2 today. -I=S(2)

 Unemployment insurance and federal entitlement programs work to stabilize the economy.  In the long run, all attempts by the government to increase aggregate demand increase the price level without increasing the real GDP.

 Hopes that reducing tax rates would increase tax collections…. failed in the 80’s. (trickle down, Reganomics and Laffer Curvep pg. 451.)  Successful policies can shift the Ag. Supply and move the economy into equilibrium.  Seek to promote economic growth rather than economic stability.

 Monetarists believe that $ supply should be allowed to grow slow but steady to control inflation and promote growth.  Monetarists believe that expanding the money supply cannot permanently affect the rate of employment.

 Discretionary fiscal policy is used less today than it once was……except for at the moment. (did you hear about the GM payback?)  Automatic stabilizers and progressive income tax work together to stabilize the American Economy.  Declining discretionary policy has increased the influence of monetary policy.  Most members of Congress believe the power to create money should remain with an independent agency, not elected officials.

 Economists choose policies that reflect their sense of economic problems and their importance  Economists are affected by economic conditions prevailing in their life-times. ◦ Ex. Hyperinflation or Great Depression vs. Stagflation

 The Council of Economic Advisers advises the president of the US on economic policy.  Economists have contributed a great deal to the understanding of economic activity. They hope to prevent another Great Depression, stimulate growth, and help disadvantaged groups. However, they can not help a country avoid recessions. Will we every know how close we were to a depression?