Macroeconomics, 2nd Edition by Pearson

AGGREGATE DEMAND AND AGGREGATE SUPPLY

279

their attempts at correcting fluctuations in economic activity might lead to fur-

ther problems that set off a chain of corrective actions. Since the stabilization

policy has potential destabilizing effects on the economy due to the presence

of lags, some macroeconomists like Friedman advocated that policy should

not respond to fluctuations. With no role for countercyclical policy, Friedman

argued that money supply should rather grow at a constant rate.

14

Advocates

of stabilization policy, on the other hand, argue that lags are unimportant and

that the government should maintain a high and ...