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In his General Theory of Employment, Interest and Money (1936), Keynes argued that people's economic expectations about the future were generally erratic and random, and could consequently be systematically wrong. In the 1970s, the Rational Expectations school, led by Robert Lucas and Thomas Sargent, began to argue that, on the contrary, people (or "economic agents") generally make rational choices according to the information available to them. For example, if people anticipate that the government will cut taxes or allow the money supply to grow or interest rates to fall, so as to boost employment and stimulate demand, they will plan and behave accordingly. Even before the government announces such measures, companies will plan price rises, and trade unions will demand higher pay. This means that predictable and systematic policies to stabilize the business cycle (e.g., monetary expansion and tax cuts) will instantly be compensated for and thus become ineffective. In other words, fiscal or monetary policy will only affect output and unemployment if it is unpredictable and comes as a surprise, in much the same way as only random news shocks stock market prices.

Monetarists such as Milton Friedman argue that the average levels of prices, wages and economic activity are determined by the quantity of money in circulation and its velocity of circulation, and that inflation is caused by excessive monetary growth. Other economists have used the same data to argue that it is increased business activity that causes the money supply to rise, and that the money supply follows prices, and not vice versa. Monetarists claim that Keynesian attempts to stabilize the business cycle only lead to rising prices and the crowding out of private investment, and that the business cycle, inflation and unemployment are the unintended results of misconceived government interventions and of exogenous variables. They insist that free markets and competition are efficient and should be allowed to operate with a minimum of governmental intervention.

Дайте відповіді на запитання.

1. What helps economic agent make rational choices?

2. How can policies to stabilize the business cycle become ineffective?

3. What determines prices, wages and economic activity?

4. What, according to monetarists, do Keynesian attempts to stabilize the business cycle do?

5. Explain M. Friedman's statement: "The cause of inflation is unnecessary monetary growth".

Дата добавления: 2015-08-18