2. One of the competing theories of why the economy was good during the “Great Moderation”...

2. One of the competing theories of why the economy was good during the “Great Moderation” was a shift to a service based economy. What were the other two competing theories? What is a service economy?

Expert Solution

The other two competing theories are:

1. Improved performance of Macroeconomic policies: In the period of "Great Moderation", macroeconomics policies, especillay monetary policy, contributed heavily in stabilizing the output and inflation fluctuations.

2. Good luck: The other theory is that the amount and the intensity of the shocks that hit the economy were smaller and less frequent during the "Great Moderation" period. This enabled the economy to achieve positive growth and stabilty.

A service based economy is an economy that in which serviced companies play a major roled when compared to manufacturing based companies. It is basically when majority of the economic activity is being generated by companies that are in the services sector. For example, United States is a service based company as a majority of the economic activity is dependent on the services sector like services maintainence and repair, banking and financial servics, cosulting. teaching etc.

Rahul Sunny answered 2 years ago

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