Abstract: Despite progress in economic science, important disagreements remain about the conduct of macroeconomic policy. This chapter identifies three broad policy positions (‘conservative’ or ‘neoclassical’, ‘standard Keynesian’, and ‘heterodox’) and looks at the theory and evidence behind each. The approaches differ not only on what they focus, but also in their assumptions concerning the structure and behavior of the economy and the behavior of government. The conservative approach focuses on inflation and deficits, which it attempts to address through tight monetary and restrictive fiscal policy. The standard Keynesian approach is more concerned with unemployment and stagnation, which it attempts to address through expansionary monetary and fiscal policy. The heterodox approach looks for non-standard ways (including the use of microeconomic interventions) to stabilize the economy, stimulate growth and employment, and contain inflation.

Keywords: neoclassical, standard Keynesian, heterodox, government interventions, price stability, employment, information asymmetries, balance sheet effects, microeconomic interventions,