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  • Keynesians & Monetarists

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    Keynesians believe that national income is determined by consumption, investment, government spending, exports and imports in a circular flow. According to Keynesian theory, a drop in interest rates can lead to a permanent rise in output by increasing investment. Monetarists believe that inflation is caused by an excess money supply and that changes in interest rates only temporarily affect output. They argue that money supply, not fiscal policy, is the main driver of inflation. The two schools of thought differ in their views on the relationship between money, income, and prices as well as the appropriate role of government intervention in the economy.

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    Keynesians believe that national income is determined by consumption, investment, government spending, exports and imports in a circular flow. According to Keynesian theory, a drop in interest rates can lead to a permanent rise in output by increasing investment. Monetarists believe that inflation is caused by an excess money supply and that changes in interest rates only temporarily affect output. They argue that money supply, not fiscal policy, is the main driver of inflation. The two schools of thought differ in their views on the relationship between money, income, and prices as well as the appropriate role of government intervention in the economy.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    99 views1 page

    Keynesians & Monetarists

    Uploaded by

    tfxx
    Keynesians believe that national income is determined by consumption, investment, government spending, exports and imports in a circular flow. According to Keynesian theory, a drop in interest rates can lead to a permanent rise in output by increasing investment. Monetarists believe that inflation is caused by an excess money supply and that changes in interest rates only temporarily affect output. They argue that money supply, not fiscal policy, is the main driver of inflation. The two schools of thought differ in their views on the relationship between money, income, and prices as well as the appropriate role of government intervention in the economy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    Issue

    Keynesians

    Monetarists (Quantity Theorists)

    seminal work a theory of ... structural base terminology asset portfolio adjustment theory

    The General Theory of Employment, Interest and Money (1936) John Maynard Keynes national income determination YC+I+G+X-M circular flow of income liquidity preference money and/or bonds excess demand for bonds bond prices price interest rate drops (permanent) output rises (permanent) fixed price models (ISLM) liquidity preference (a bond price or monetary theory) cost push only with full capacity output original Phillips curve left-of-centre a somewhat comprehensive socialisation of investment

    Studies in the Quantity Theory of Money (1956) Milton Friedman the demand to hold money MV PQ circulation of money demand to hold money money/and/or all other items excess demand for goods/services all prices rise (inflation) interest rate drops (temporary) output rises (temporary) adjustment of equilibrium level of prices loanable funds - demand/supply of credit (real determinants) demand pull stagflation possible augmented Phillips curve right-of-centre entrepreneurship, ingenuity, invention, hard work, and thrift

    excess money supply

    Interest rate theory inflation politics driver


    mantra

    money is not income is not money is not income is not money is not income is not ....

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