Which of the following policy recommendations are consistent with the classical, Keynesian, monetarist, and/or Great Moderation 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 inflationary pressure. c. Increase the money supply in order to alleviate a recessionary gap. d. Always maintain a balanced budget. e. Decrease the budget deficit as a percent of GDP when facing a recessionary gap.

To determine which policy recommendations align with each of the macroeconomic views, we first need to know the basic ideas and principles behind them: 1. Classical: This view is based on the idea that the economy is self-regulating, and that government intervention is not necessary, since market forces will ensure long-term growth and full employment. The classical view also emphasizes the importance of maintaining a balanced budget and low inflation. 2. Keynesian: Keynes believed that government intervention is necessary to maintain full employment and economic growth, especially during recessions. In this view, fiscal policy (changes in government spending and taxation) plays an important role to stimulate aggregate demand. 3. Monetarist: Monetarists argue that controlling the money supply is the most effective way to stabilize the economy. According to them, maintaining a steady and predictable growth rate of the money supply is key to controlling inflation. 4. Great Moderation consensus: This view emerged in the late 20th century after a period of relatively stable economic growth and low inflation. It combines elements of both Keynesian and monetarist theories, believing that central banks should focus on inflation targeting and maintaining financial stability, while allowing for some government intervention in the form of fiscal policy.

The policy to grow money supply at a rate equal to the long-run GDP growth (2%) is in line with the monetarist view, as they argue that a steady and predictable growth rate of the money supply is necessary to maintain economic stability.

Decreasing government spending in order to decrease inflationary pressure is consistent with the classical view, which emphasizes maintaining low inflation and minimal government intervention in the economy.

Increasing the money supply to alleviate a recessionary gap is in line with the monetarist view, which believes that controlling the money supply is the key to stabilizing the economy.

Maintaining a balanced budget is consistent with the classical view, which advocates avoiding government deficits and market distortions caused by fiscal policies.

Decreasing the budget deficit as a percent of GDP when facing a recessionary gap is more in line with the Great Moderation consensus view, which combines elements of both Keynesian and monetarist theories and accepts some degree of government intervention through fiscal policy, while maintaining a focus on controlling inflation in the long run.