Which of the following schools of economic thought is decidedly opposed to government intervention in the macroeconomy?

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

Answer: (B)

The main idea is understanding which schools argue against using government policy to smooth the business cycle. New Classical thought stresses that markets are efficient and expectations are rational, so attempts to fine-tune the economy with discretionary policy can backfire through time inconsistency and misperceptions. Prices and wages adjust quickly, and the best policy is to let the market clear rather than intervene. Monetarism adds a related view: the money supply drives much of the long-run path of the economy, and because discretion in monetary policy can create cycles and uncertainty, a steady, rule-based approach to money growth minimizes distortions. Put together, these traditions argue that government intervention in demand management is not just unnecessary but potentially destabilizing, which is why they’re considered decidedly opposed to active macroeconomic intervention. Keynesian economics, in contrast, argues that government spending and policy can help close gaps during downturns, aligning with active intervention.