 Now that we have compared effectiveness of monetary policy to be specific we have analysed effectiveness of expansionary monetary policy in three types of models that is traditional model, new classical model and new Keynesian model. So, now we will look at the basis of policy maker, if we want to adopt a policy, then what are the three types of models that should be adopted in the way that the monetary policy maker is thinking that this type of policy will be effective. So, first of all, we have which policy we want to look at, we will analyse two types of policies. In the last lecture, we initially checked effectiveness in a framework, now we are talking about practical policy, so in policy we will analyse two types of policies, one is stabilisation policy and one is anti-inflationary policy, so in this lecture, our focus is on stabilisation policy, stabilisation policy, first of all, I would like to define what it means. Look, when the economy shocks the output, for example, the oil price has increased, the oil demand has increased, the crop has become better because of that, or the rain in the harvesting season has increased due to which the crop has been damaged, or some of your remittances have increased, so the different types of shocks that hit the economies, so as a result of that, output, that is GDP fluctuates, sometimes it is less, sometimes it is more, its growth rate is less, sometimes it increases at a normal level, sometimes it increases at a high rate, sometimes it increases at a low rate, so stabilisation means that the fluctuation in the output due to different types of shocks which are hitting the economy, then in that case, stabilisation policy means a policy intended to reduce output fluctuations, that is, because of shocks, the tendency to fluctuate in the output, but the policy should be handled in such a way that the output is not very volatile, this is what we call stabilisation policy. And in this, I had told you in a lecture that there are two types of economists or two groups from which there is an activist and a non-activist, according to the activist, the policy maker should actively stabilise the output, and according to the non-activist, it should not be stabilised because as a result of stabilisation, when the policy intervenes, as a result of stabilisation policy, the output actually becomes more volatile, this is the point of view of non-activists. Now let us look at the three models. First of all, our first model was a traditional model, in which we saw that whenever we have an expansionary policy, the output will increase, this means that if we have a contractionary policy, the output will decrease, now we have to stabilise, stabilisation means that if a shock other than monetary policy hits our economy, if it is expansionary and the output is increasing, then we will make monetary policy a contractionary policy, and if the shock comes, it is a contractionary policy, then we will make monetary policy an expansionary policy, so that the output of our natural rate of unemployment is consistent and does not deviate more than that. So, because we saw that people's expectations are not revised quickly, and people are backward looking, so because technically, according to our model, the cost of production is not completely changed, whenever an economy, especially demand shock hits an economy, then this means that in a traditional model, policy will be fully effective, this means that policy makers, if they want, then the kind of shocks that hit the economy are expansionary shocks or contractionary shocks, expansionary shocks increase our output, and contractionary shocks reduce our output to GDP, so any kind of shock can respond to policy maker because its policy is effective, and its reason is that people do not adjust their expectations at all. In contrast, if we want to see the view point of a new classical model, whether the policy maker should actively stabilise the output, then we go there and find out that in a new classical model, because people's expectations are quickly revised, then the new classical model differentiates between unanticipated inflation and unanticipated inflation, or unanticipated shock and unanticipated shock, this means that if the policy has a shock against policy change, then if it is unanticipated change, then the effects of the policy will come, this means that the policy will be able to counter the shock, and if it is unanticipated, the policy will change, then as soon as the policy changes, people will revise their expectations as well, and because people's expectations are revised, the wages and cost of production will be changed, as a result of this, the supply side will receive such changes that the resultantly policy will be ineffective, so this means that if the policy is unanticipated, then the effects will not be there, the stabilisation will not be there from the policy maker, and if the policy is unanticipated, then the effects of the policy can be there, or new classical models raise another point that sometimes even unanticipated cases where the policy can be effective, there also can be a problem, and the problem can be that in people's minds that the policy maker did not announce his policy, but he can contract his policy, and for example, he can increase the interest rate from 200 basis points, it can be that the monetary policy is actually increasing the policy rate from 100 basis points, so what will happen? The problem will be that people have overpredicted the policy change, because it was unanticipated, I do not know how much it will change, so people have overpredicted it, now if the actual monetary policy increases the interest rate from 100 basis points, then the output will actually decrease compared to the previous one, it will also decrease from the level at which the policy maker wants to keep it, this means that as a result of the stabilisation policy, there is an uncertainty created, due to which the output fluctuation does not decrease, the output fluctuation increases, this is the reason that new classical non-activists do not say that whenever the shock hits the economy, then the monetary policy should be accordingly responded, the last model was the New Keynesian model, and we know the setup of the New Keynesian model is that people's expectations are revised here, but the wages cannot be adjusted quickly due to which the cost of production cannot be adjusted quickly, the result is that if the policy is unanticipated, then the effects increase, but if it is anticipated, then it is effective, but it is less compared to the traditional model or the effectiveness of the unanticipated model in the New Classical model, it is less than that, so this means that even in this model, there is a role of stabilisation policy towards the policy maker, but in this the policy maker is uncertain that the policy that I am going to change, whether the public has its expectations or whether the public has no expectations, so the policy maker is not sure about whether the policy is unanticipated or anticipated, so this means that the effects of the policy will be there, and the intervention of the policy, where the shocks are also desirable, but remember that the effects will not be as much as in the traditional model, thank you.