Chapter 17 Summary:- Classical macroeconomics asserted that monetary policy affected only the aggregate price level, not aggregate output, and that the short run was unimportant. By the 1930s, measurement of business cycles was a well-established subject, but there was no widely accepted theory of business cycles.- Keynesian economics attributed the business cycle to shifts of the aggregate demand curve, often the result of changes in business confidence. Keynesian economics also offered a rationale for macroeconomic policy activism.- In the decades that followed Keynes’s work, economists came to agree that monetary policy as well as fiscal policy is effective under certain conditions. Monetarism, a doctrine that called for a monetary policy rule as opposed to discretionary monetary policy, and which argued – based on the belief that the velocity of money was stable – that GDP would grow steadily if the money supply grew steadily, was influential for a time but was eventually rejected by many macroeconomists.- The natural rate hypothesis became almost universally accepted, limiting the role of macroeconomic
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