Question from Past Macroeconomics Qualifying ExamEdit
Spring, 2004 - Question five- at George Mason University
Are growth and cycles analytically separable phenomena, or are they two non-separable facets of the same economic process? Describe how different schools of macro theorizing have addressed this question, and discuss the analytical cogency and explanatory power of these efforts.
When studying macroeconomics, it is traditional to seperate the study into the trend (growth) as well as the cycle. In seasonal analysis (Barskey 1989) the question is raised about how the cycle may just be part of the normal fluctuations of the macroeconomy. Rather than seeing it as a departure from some ideal equilibrium, the cycle could just be a period of "regrouping" or "clearing the desk" (Cowen). The periods of relatively high output could, in this same view, be seen as "the grove." (Cowen). This seems to fit with the standard Austrian analysis which sees the cycle as a responce to the fundamental signals generated by changing real interest rates. This would be supported by the "creative distruction" analysis of Shumpter - also associated with the Austrian school.
The Keynesians by contrast see the economy something like the "Stag Hunt Game" where coordination could acheive higher output and the failure to coordinate (getting stuck on the inferior on-diagonal) would necessitate government intervention.
Rational Expectations also take the approach that the economy is at all times in a state of equilibrium. This is the view of Fisher Black as well. He states that Keynesianism is not a theory of equilibrium, but of disequilibrium, pointing out the assumptions of the model are not stable on the face.
- Barsky, Robert and Miron, Jeffrey. “The Seasonal Cycle and the Business Cycle,” Journal of Political Economy, 1989, 503-534.
- Cowen, Tyler. Lectures Fall 2005, GMU
|This macro-stub needs improving.|