Keynesian+Monetary+Policy

**Keynesian’s and Monetarists of course disagree about the money supply and the direct impact on the economy. Monetarists strongly believe that if the money supply increases it has a very considerable influence on GDP, therefore impacting economic growth. Keynesian’s on the other are more sceptical and believe that if we increase money supply, we’ll spend each dollar less times. Keynesian’s reject most Monetarists ideologies and also question how effective Monetary Policy is and its impact on the economy. Robert Maynard Keynes believed that the solution to contractions in the business cycle was Fiscal Policy to overcome difficult times. Keynesian economists reject the idea that the velocity of money doesn’t change. The Monetarists, however, believe that an increase in the money supply will increase nominal GDP (because the velocity of money isn’t changing). Monetarists also warn that if the economy is at full employment then Q & V are constant, which means an increase in the money supply will cause an increase in inflation. Keynesians believe prices are sticky. Keynesians believe that Expansionary Monetary Policy (used to close recessionary gaps) is an effective method to boost the economy. It’s used to increase real GDP by increasing the money supply which directly lowers interest rates, increases investment spending, increasing demand, increase prices; thus increasing economic growth. “As Keynesians reject most Monetarists ideas, they tend to place less emphasis on the effectiveness of monetary policy and more emphasis on the effectiveness of fiscal policy, which they regard as having a more direct effect on real GDP.” (Cliff notes, 2011) ** **References** **1. Keynesian view of monetary policy.** [|**http://www.cliffsnotes.com/study_guide/Monetary-Policy.topicArticleId-9789,articleId-9750.html**] **2.** [|**http://useconomy.about.com/od/glossary/g/Expansionary.htm**]
 * Keynesian Monetary Policy**