Which of the following do most economists NOT agree on?

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BlackTom AI · Accepted Answer

Here is a thorough walkthrough of each option to understand where economists tend to land, keeping in mind that there is debate across topics.
Option a: 'Automatic stabilizers are preferable to discretionary fiscal policy.' Some economists argue that automatic stabilizers (like progressive taxes and unemployment benefits) operate without new legislation and can dampen cycles more quickly and predictably, which supports their preference. Others contend that discretionary fiscal policy—deliberate, targeted government spending and taxation—can be more effective in addressing specific downturns or structural issues. The disagreement here centers on efficiency, credibility, and timing, with differing views on whether automatic mechanisms consistently outperform discretionary choices.
Option b: 'Monetary policy is effective if there is no liquidity trap.' In typical macroeconomic theory, monetary policy is considered effective in normal times when interest rates can influence spending and investment. However, some economists argue there are limits or diminishing returns even outside a liquidity trap, due to factors like imperfect information, financial frictions, or the zero lower bound not being the only constraint. Others emphasize that institutional details, expectations, and global spillovers can complicate effectiveness. So there is broad support for effectiveness in standard conditions, but not universal consensus on all channels or magnitudes.
Option c: 'None of the above.' This statement claims that all of the previous options (a, b, d, e) are not universally agreed upon by most economists. If the broader literature contains credible disagreement on any of the earlier points, this option would be viewed as incorrect by those who believe there is substantial consensus on at least some of them. The degree of consensus about these issues is nuanced and often depends on definitions, contexts, and empirical evidence.
Option d: 'Large discretionary fiscal policy should only be used in the case of a large and persistent recession during which monetary policy is ineffective due to a liquidity trap.' Many economists endorse a cautious, rules-based approach, arguing that large discretionary fiscal actions should be reserved for severe downturns when monetary policy is constrained. Others worry about long-run debt, crowding out, political economy constraints, and effectiveness doubts, and therefore disagree with restricting fiscal action to such scenarios. The tension here is about timing, size, and conditions under which fiscal policy is warranted.
Option e: 'Attempting to keep the unemployment rate below the natural rate of unemployment will result in accelerating inflation.' The natural rate hypothesis and the concept of NAIRU (non-accelerating inflation rate of unemployment) suggest there is a trade-off; pushing unemployment below the natural rate can generate rising inflation, at least in the short to medium run. While there is wide acceptance of this general idea, there are debates about the exact level of the natural rate, the persistence of any short-run trade-off, and how expectations adapt. Thus, this statement captures a mainstream intuition but not without contested nuances.

In summary, each option reflects a topic with substantial debate and differing emphases among economists, rather than a single universally agreed-upon point. The combined weight of evidence and opinion means psychologists often read these statements with caveats and context, rather than as uncontroversial certainties.

NFLS2024ECON11 Ungraded Questions - Macroeconomic Theories and Long-Run Economic Growth

Which of the following do most economists NOT agree on?

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NFLS2024ECON11 Ungraded Questions - Macroeconomic Theories and Long-Run Economic Growth

Which of the following do most economists NOT agree on?

View Explanation

Log in for full answers

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An increase in tax rates is an example of policy, while the government influencing banks to lend more to consumers is an example of policy.