Summary 365
Nixon entered office in January 1969 and was reelected in No-
vember 1972. He resigned in August 1974.)15.The economy of Albernia is facing a recessionary gap, and
the leader of that nation calls together five of its best econo-
mists representing the classical, Keynesian, monetarist, real
business cycle, and modern consensus views of the macro-
economy. Explain what policies each economist would rec-
ommend and why.
16.Which of the following policy recommendations, if any, are
consistent with the classical, Keynesian, monetarist, and/or
modern consensus views of the macroeconomy?
a.Since the long -run growth of GDP is 2%, the money supply
should grow at 2%.
b.Decrease government spending in order to decrease infla-
tionary pressure.
c.Increase the money supply in order to alleviate a recession-
ary gap.
d.Always maintain a balanced budget.
e.Decrease the budget deficit as a percent of GDP when fac-
ing a recessionary gap.
17.Using a set of graphs as in Figure 35.2, show how a mone-
tarist can argue that a contractionary fiscal policy may not
lead to the desired fall in real GDP given a fixed money sup-
ply. Explain.
Government
Government receipts Government spending budget balance 3-month Treasury
Year (billions of dollars) (billions of dollars) (billions of dollars) M1 growth M2 growth bill rate
1969 $186.9 $183.6 $3.2 3.3% 3.7% 6.68%
1970 192.8 195.6 −2.8 5.1 6.6 6.46
1971 187.1 210.2 −23.0 6.5 13.4 4.35
1972 207.3 230.7 −23.4 9.2 13.0 4.07
1973 230.8 245.7 −14.9 5.5 6.6 7.04Section 6 Summary