The government intervenes in the economy in the following three ways:

a. Fiscal intervention: The fiscal intervention in the economy involves changing government spending or expenditure and also changing the rate of taxes in the economy. Government follows expansionary monetary policy involving increasing government expenditure and reducing taxes during the time of recession and government follows contractionary fiscal policy involving reducing expenditure and increasing taxes during the time of inflation.

b. Monetary intervention: This involves change in the money supply by the Central Bank of the country. Money supply is increased or expansionary monetary policy leading to fall in the rate of interest is followed during the time of recession and money supply is reduced or contractionary monetary policy leading to rise in the rate of interest is followed during the time of inflation.

c. Supply Side efforts- When government increases investment in technological advancement, human capital formation, research and development, reduce taxes on production, then the government is making supply side efforts to increase the level of production taking place in the economy.

Looking at the criticism of government involvement from the Classical perspective, the supply side efforts from the government is the best policy. This is because both fiscal and monetary intervention involves demand side changes in the economy , however, Classical believed in supply side economics and always suggested measured to increase aggregate supply in the economy. Thus, supply side efforts makes most sense from Classical perspective.

I am curious as to what you mean when you say that supply-side efforts make the most sense from the classical perspective. It is my understanding that classical economists denounce mercantilism and government involvement, including supply-side efforts. Adam Smith, in a way, discusses the negative effects of supply-side economics--or the trickle-down effect--when he writes about the impoverishment of the working class sheep shearers and weavers.?

1) What is the Real Business Cycle Theory say about business cycles? 2) How is the Real Business Cycle Theory different from the Keynesian school of thought? 3) How is the Real Business Cycle Theory different from the Monetarist school of thought? 4) What are the strengths of the Real Business Cycle Theory? 5) What are the weaknesses of the Real Business Cycle Theory?bank. 21- Explain the binding situation and draw the Fed Rule and AD curve associated with binding situation. 22- Suppose that the economy is experiencing stagflation. What is the policy you recommend to the central bank. Elaborate your answer. 23- Explain briefly the main idea of the supply side economics. Draw the Laffer curve and explain the main idea of the Laffer curve. Considering the experience of Reagan administration, what is your evaluation of supply side economics? auld takeQuestion 14 Suppose that real GDP equals $100 billion while full employment real GDP equals Not yet answered $140 billion. To close this gap, the government should increase its spending by Marked out of 1.00 P Flag question Select one: O a. $5 billion if the MPC is 0.8. O b. $4 billion if the MPC is 0.8. O c. $2 billion if the MPC is 0.9. O d. $4 billion if the MPC is 0.9. Question 15 Which of the following statements is correct regarding automatic stabilisers Not yet answered Select one: Marked out of 1.00 a. As economic activity rises government spending automatically falls and so too do tax receipts. Flag question O b. As economic activity declines government spending automatically rises and tax receipts automatically fall O C. As economic activity rises spending by government tends to rise automatically and so too do taxes O d. As economic activity falls tax collections automatically decline as does Government spending.Question 19 (3 points) As new firms enter a monopolistically competitive market, profits of existing firms will decline and product diversity in the market increases. rise and product diversity in the market increases. rise and product diversity in the market decreases. decline and product diversity in the market decreases. Previous Page Next Page Page 19 of 30Which of the following statements is correct regarding automatic stabilisers Select one: Q a.As economic activity rises spending by government tends to rise automatically and so too do taxes b. As economic activity declines government spending automatically rises and tax receipts automatically fall. c.As economic activity rises government spending automatically falls and so too do tax receipts. OOO d.As economic activity falls tax collections automatically decline as does Government spending