As the U.S. economy recovers from the recession of 2007-2009, stubbornly high unemployment is a concern. For each of the three business cycle models, identify the appropriate policy regime

What will be an ideal response?

The traditional Keynesian model advises a low real interest rate and a large fiscal deficit to stimulate aggregate demand. The new Keynesian model recommends a moderate stimulus and public announcement of policy makers' commitment to achieving the lowest possible rate of unemployment consistent with price stability. The real business cycle model cautions that policies to promote high employment must operate through incentives to work and to invest, so that aggregate productivity is improved.