Question

Economic theories and models are not stagnant and adjust to reflect changing conditions. What are your observations on the evolution of macroeconomic theory and models over time?

What areas of debate over monetary and fiscal policies remain?

Answer 1

Economic theory is adjusted according to the dynamic environment . Macroeconomics evolves with the evolution of the economy.this theory change over the time.they keep on changing because major economic events like inflation, deflation bring into focus problem prevailing with this theory.

Prior to modern theory economist did not generally differentiate between micro and macro economics.early theorists believed monetary factors could not affect real Factor such as real output.Classicaleconomist hold that prices ,wages and rates are flexible and markets always clear.

As per new classical macroeconomics analysis with rational expectations assumes that prices are completely flexible.according to this assumption changes in monetary policy if anticipated have no short run effect on real GDP or on the economy.as per new Keynesian the policy ineffectiveness proposition requires prices to be completely flexible.

Areas of debate over fiscal and monetary policy

Monetary policy's primary concern is management of interest rates while fiscal policy use taxation and government spending to target aggregate demand.monetary policy has less direct impact on real economy while fiscal policy have direct impact