Research paper outline

Topic: Can government really stabilize the economy?

Thesis statement (My view):
Due to some historical and statistical facts, government’s acts and policies to intervene the economy do helpful to stabilize the economy.

Introduction:
Different schools economists hold different points of view about the topic. The classic school, the rational-expectations school indicates that the government cannot really stabilize the economy. However, Keynesians and neo-Keynesians think that government’s acts, if act properly, do helpful to stabilize the economy.

Background Knowledge:
Different Schools of Economists View:

Against government intervention:
1. Classic View:
Argue that there is a nature tendency for an economy to move toward an macro equilibrium at full employment without inflation.
Adam Smith: there’s an “invisible-hand” of the market, so government do not to intervene the economy.
Failure examples:
The great depression in 1930s

2. Rational Exceptions View
They think that people’s anticipation of fiscal and monetary policies undermines the policy and thus the government’s act is not useful to stabilize the economy anymore.

Advocate government intervention:
1. Keynesian View:
The school of thought argues that by useful government adjustment and intervention, it is possible for an economy to reach the full employment without inflation.
1. Keynesian view of the unemployment
2. Keynesian view of inflation
3. Keynesian’s method to improve the economy during the great depression.

Supporting examples:
Economist Keynes advocates government intervention of economy. In the midist of 1930s’, he was invited to white house as a financial advisor for President Franklin D. Roosevelt. After he demonstrates his view to president, Roosevelt supports his ideas and applies the New Deal. Soon the economy turns vivid again.

2. Neo Keynesian View
They revised the idea of Keynesian view about the possibility for an economy to reach full employment without any inflation because the statistics should the reverse relationship between the inflation rate and rate of unemployment. However, they believe that by managing the aggregate demand, government can achieve the most comfortable combination of inflation rate and the rate of unemployment.
Supporting examples:
The Humphrey-Hawkins Act of 1978
It states that, the most comfortable combination of unemployment and inflation in 1978 is 3percent rate of inflation and 4percent rate of unemployment. The government should force the economy to that rate by adjusting aggregate demand or government expenditure. This act reduces both the inflation rate and the rate of unemployment in the next 10 years.

Conclusion:
Although government cannot reduce the rate of unemployment and inflation rate to zero percent at the same time, government, however, can stabilize the economy by using propitiate policies in different situations.



Reference,
6e, principles of MacroEconomics
Fred Gottheil

Chapter 12, Chapter 13.