Summary and Synthesis for Topic 3_Keynes and Monetarism

Gabon, Roselyn P.
MAED-SocSci
1st Sem

Keynesian economics is a macroeconomic economic theory of total spending in the

economy and its effects on output, employment, and inflation. ... Based on his
theory, Keynes advocated for increased government expenditures and lower taxes
to stimulate demand and pull the global economy out of the depression. The
macroeconomic study of Keynesian economics relies on three key assumptions--
rigid prices, effective demand, and savings-investment determinants.
Monetarism is an economic school of thought which states that the supply of
money in an economy is the primary driver of economic growth. ... Monetary
policy, an economic tool used in monetarism, is implemented to adjust interest
rates that, in turn, control the money supply.
The difference between these theories is that monetarist economics involves the
control of money in the economy, while Keynesian economics involves
government expenditures. Monetarists believe in controlling the supply of money
that flows into the economy while allowing the rest of the market to fix itself.
Keynes purpose or idea is increased government expenditures and lower taxes to
meet the demand and to help the economy. An economy's output of goods and
services is the sum of four components: consumption, investment, government
purchases, and net exports (the difference between what a country sells to and buys
from foreign countries). But the problems of Keynesian economics demand do not
necessarily equal the productive capacity of the economy; instead, it is influenced
by a host of factors and sometimes behaves erratically, affecting production,
employment, and inflation. Based on the study there are positive results of
Keynesian Economics Higher Employment Levels, Stabilization of the Banking
Industry, Tighter Control on Government Spending, Tools to Monitor Economic
Output, Moderation of Interest Rates.
Monetarism is a macroeconomic theory which states that governments can foster
economic stability by targeting the growth rate of the money supply. Essentially, it
is a set of views based on the belief that the total amount of money in an economy
is the primary determinant of economic growth. The main idea of monetarism that
the economic thought that maintains that the money supply (the total amount of
money in an economy, in the form of coin, currency, and bank deposits) is the
chief determinant on the demand side of short-run economic activity.