Chapter 11: Problem 1

Until the Great Depression, the dominant schoo economic thought was \((\mathrm{LO} 4,5)\) a) classical economics b) Keynesian economics c) supply-side economics d) monetarism

Short Answer

Expert verified

The dominant school of economic thought before the Great Depression was a) Classical Economics.

Step by step solution

Introduce the economic theories

To solve this exercise, let's start by introducing the four economic theories presented in the options: a) Classical Economics b) Keynesian Economics c) Supply-side Economics d) Monetarism

Explain Classical Economics

Classical Economics includes the ideas of Adam Smith, David Ricardo, and other economists who believed in the self-regulating nature of the market. They argued that markets are efficient and government intervention should be limited. The ideas of classical economists were dominant during the late 18th and early 19th centuries.

Explain Keynesian Economics

Keynesian Economics is based on the ideas of John Maynard Keynes, which gained popularity mostly during and after the Great Depression. Keynes argued that the government should play a significant role in the economy to counteract market failures such as underemployment and insufficient demand. This school of thought was dominant from the 1930s to the 1970s.

Explain Supply-side Economics

Supply-side Economics focuses on the policies that increase the production of goods and services in the economy, such as tax cuts and deregulation. This school of thought gained popularity during the 1980s, with Ronald Reagan's economic policies in the United States.

Explain Monetarism

Monetarism is an economic theory that emphasizes the role of monetary policy (i.e., controlling the money supply) in stabilizing the economy. This school of thought, developed by economists such as Milton Friedman, became prominent in the late 20th century.

Identify the dominant theory before the Great Depression

To answer the question, we need to determine which economic theory was dominant before the Great Depression that started in 1929. Based on the information provided, Classical Economics was the dominant school of thought before the Great Depression. So, the correct answer is: a) Classical Economics

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