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Should the government use monetary and fiscal policy to stabilize the economy, or should it adhere to policy rules and refrain from upsetting the economy?

Monetarist economists would argue that policy rules will promote and sustain stability in the economy, and prevent government involvement to avoid errors that cause macroeconomic instability. Mainstream or Keynesian economists would argue that government interference through monetary and fiscal policies especially during a recession is the key to macroeconomic stability. They also believe that market failures operated by the private sector cause economic instability, sometimes needing fiscal stimulus in action. In other words, Monetarists advocate for increases in money supply equivalent to potential GDP growth rate to promote a self-correcting economy, while Keynesian economics disagree with the velocity of money in the short run, therefore government policies are necessary to combat recession/inflation.

What wouldthe Classicalshave thought about the Fed's handling of the financial crisis?Compare theClassicals'view to Monetarist's viewFed's handling of the financial crisis.

To begin with, the Monetarist view is that the Great Depression was caused by mishandlings of the Federal Reserve -- the inability of the Fed to avert the downward trend of money supply and the reduction of stock money that spiraled into a financial crisis. The Classical view, on the other hand, theorizes that the Fed should inject liquidity into banking systems especially when liquidity source is unavailable, which they did during the Great Recession.