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    G) Keynesian and Monetarist Schools

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    Davidsarney
    Keynesian and monetarist schools represent different theoretical approaches to macroeconomics. [1] Keynesians believe that spending influences economic output in the short run and that governments should intervene during recessions through fiscal and monetary policy. [2] In contrast, monetarists believe that changes in the money supply influence output and prices, and that interest rates have a greater impact on investment than confidence. [3] Keynes shifted thinking from long-run aggregate supply to aggregate demand, while monetarists argue that inflation is caused by excessive money supply growth.

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    G) Keynesian and Monetarist Schools

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    Davidsarney
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    Keynesian and monetarist schools represent different theoretical approaches to macroeconomics. [1] Keynesians believe that spending influences economic output in the short run and that governments should intervene during recessions through fiscal and monetary policy. [2] In contrast, monetarists believe that changes in the money supply influence output and prices, and that interest rates have a greater impact on investment than confidence. [3] Keynes shifted thinking from long-run aggregate supply to aggregate demand, while monetarists argue that inflation is caused by excessive money supply growth.

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    g) Keynesian and Monetarist schools

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    Keynesian and monetarist schools represent different theoretical approaches to macroeconomics. [1] Keynesians believe that spending influences economic output in the short run and that governments should intervene during recessions through fiscal and monetary policy. [2] In contrast, monetarists believe that changes in the money supply influence output and prices, and that interest rates have a greater impact on investment than confidence. [3] Keynes shifted thinking from long-run aggregate supply to aggregate demand, while monetarists argue that inflation is caused by excessive money supply growth.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14 views3 pages

    G) Keynesian and Monetarist Schools

    Uploaded by

    Davidsarney
    Keynesian and monetarist schools represent different theoretical approaches to macroeconomics. [1] Keynesians believe that spending influences economic output in the short run and that governments should intervene during recessions through fiscal and monetary policy. [2] In contrast, monetarists believe that changes in the money supply influence output and prices, and that interest rates have a greater impact on investment than confidence. [3] Keynes shifted thinking from long-run aggregate supply to aggregate demand, while monetarists argue that inflation is caused by excessive money supply growth.

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    of 3

    CIE​ ​Economics​ ​A-level

    Topic​ ​4:​ The Macroeconomy

    g) Keynesian and Monetarist schools

    Notes

    www.pmt.education
    Different theoretical approaches to how the macro economy functions

    Keynesian economics is a view that believes AD (spending) influences economic


    output in the short run. Keynesians also believe that the private sector sometimes
    leads to inefficiency, so the public sector has to intervene in order to stabilise the
    business cycle. This refers to monetary policy and fiscal policy in particular.

    Keynesians prefer mixed economies, where the private sector is dominant, but the
    government intervenes during recessions.

    The Great Depression initiated in 1929, and by 1933 real GDP had fallen by 30% and
    the unemployment rate increased to 25%. In the 75 years prior to this, economic
    declines lasted about 2 years; the Great Depression lasted for over a decade.

    Keynes shifted macroeconomic thought from a focus on AS to AD. Keynesian


    economists emphasise the use of demand-side policies, fiscal and monetary, to close
    gaps between actual and potential output. The 2008 financial crisis caused an
    increase in popularity of Keynesian beliefs.

    Keynesians believe that as long as firms have confidence about the future, they will
    invest. Investment is independent of the price level or interest rates.

    Monetarism emphasises government control over the money supply. This view
    believes that changes in the money supply influences national output in the short
    run, and influences the price level in the long run.

    Rather than how confident firms feel, monetarists believe that interest rates have a
    greater influence over investment decisions.

    Monetarists believe that inflation is caused by excessive quantities of money flowing


    in the system. If production increases at a slower rate to the money supply,
    monetarists argue that there will be inflation. The money supply increases when
    more money is printed or there are several loans and credit.

    www.pmt.education
    Keynesian view of long run aggregate supply

    The Keynesian view suggests that the price level in the economy is fixed until
    resources are fully employed. The horizontal section shows the output and price
    level when resources are not fully employed; there is spare capacity in the economy.
    The vertical section is when resources are fully employed.
    Over the spare capacity section, output can be increased (AD1 to AD2) without
    affecting the price level (stays at P1). In other words, output changes are not
    inflationary.
    Once resources are fully employed, an increase in output (AD3 to AD4) will be
    inflationary (price level increases from P2 to P3).

    www.pmt.education

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