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a. You have just been elected Democratic president of the United States, and the present chairman of the Federal Reserve Board has resigned. You need to appoint a new person to this position, as well as a person to chair your Council of Economic Advisers. Consider the table below New Classical Economics Issue Mainstream Monetarism Rational Expectations Macroeconomics View of the private stable in long run at Stable in long run at Potentially unstable natural rate of natural rate of economy unemployment unemployment Cause of the observed Investment plans unequal to Unanticipated AD and AS saving plans (changes in Inappropriate monetary shocks in the short instability of the AD) ; AS shocks policy run private economy Both prices and wages stuck Assumptions about in the immediate short Prices flexible upward and Prices and wages flexible both upward short-runprice and run; in the short run, downward in the short wages sticky while prices run; wages sticky in the and downward in the wage stickiness inflexible downward but short run short run flexible upward Appropriate macro Active fiscal and monetary Monetary rule policies policy Monetary rule By changing the interest No effect on output How changes in the By directly changing AD, because price-level money supply rate, which changes investment and real GDP which changes GDP changesare affect the economy anticipated View of the velocity Unstable Stable No consensus of money How fiscal policy No effect because affects the Changes AD and GDP via the No effect unless money multiplier process supply changes price-level changes economy are anticipated Impossible in the long run Impossible in the long View of cost-push Possible (AS shock) in the absence of run in the absence of inflation excessive money supply excessive money growth supply growth You will want to appoint members that have a mainstream approach and who are in favor of active fiscal and monetary policies. mainstream approach and who are not in favor of active fiscal and monetary policies. monetarist approach and who are not in favor of active fiscal and monetary policies. monetarist approach and who are in favor of active fiscal and monetary policies. b. The supply-side approach is designed to reduce the costs of production, increase worker productivity, and shift aggregate supply to the right. O is designed to reduce the costs of production, increase worker productivity, and shift aggregate supply to the left. O was used by the Reagan administration to fire all automobile workers and rehire new ones. O was used by the Reagan administration to shift the aggregate supply curve to the left