From the provided material, which pair of schools both advocate limited government intervention in the macroeconomy?

• A. Classical and Keynesian
• B. New Classical and Monetarism
• C. New Keynesian and Classical
• D. Keynesian and Monetarism

Answer: (B)

The main idea here is how different macroeconomics schools view the government’s role in stabilizing the economy. The pair that fits is the combination of New Classical and Monetarism because both advocate minimal, rule-based intervention rather than active, discretionary policy.

New Classical economics argues that markets clear quickly and that people form rational expectations, so efforts to fine-tune the economy through policy often fail or backfire. It emphasizes that government policy has limited real-effects and should be constrained. Monetarism similarly centers on the money supply as the primary driver of nominal variables, supporting a steady, predictable monetary rule and guidance away from discretionary policy. Taken together, they advocate keeping government intervention in macroeconomic stabilization to a bare minimum.

Other options mix schools that endorse more active stabilization—Keynesian and New Keynesian call for demand management, while Classical alone focuses on market-clearing but is paired with a school that doesn’t emphasize limited intervention as strongly as these two.