Question
In macroeconomics, the effect of monetary policy is an issue that has caused many debates and controversies. Two economists, Professor Lucas and Professor Mankiw hold
In macroeconomics, the effect of monetary policy is an issue that has caused many debates and controversies. Two economists, Professor Lucas and Professor Mankiw hold two different views:
Professor Lucas: monetary policies may temporarily stabilize output, the job market and change interest rates, but in the long run, they are destabilizing. In the long run, monetary polices cause inflation, and leave the natural rate of GDP and jobs unchanged.
Professor Mankiw: monetary policies are effective. They can shorten economic pains, reduce the prospect of long run inflation rate, and keep the economy as close to the natural rate of GDP as possible.
compose an explanation to comment on the two views. Who is right and explain thoughts? Feel free to use any models learned in this class to illustrate answer. Be as specific as detailed as possible. Answer should be typed. The graphs can be drawn on paper.
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