Table of Contents
Why do monetarists criticize fiscal policy?
Monetarists view fiscal policy less effective than monetary policy because of the low interest elasticity of money demand. Concerning the Phillips curve, monetarists criticise the money illusion implied in it, which is the basis for the relationship between inflation and unemployment.
What do monetarists and Keynesians disagree on?
Monetarists believe in controlling the supply of money that flows into the economy while allowing the rest of the market to fix itself. In contrast, Keynesian economists believe that a troubled economy continues in a downward spiral unless an intervention drives consumers to buy more goods and services.
What do the Keynesian economists think the federal government should do to reduce unemployment?
What do Keynesian economists think the federal govt should do in order to reduce unemployment? they believe that changes in the money supply determine the direction of a nations economy. Why do nations need a system of currency exchange rates?
Is LM curve monetarist?
When discussing the IS/LM model we again were introduced to an extreme position. The position was that the level of interest rates did have no impact on the demand for money, which would cause the LM-curve to become vertical. This was termed the “monetarist” position.
Why do Keynesians prefer fiscal policy?
When the economy is booming — unemployment low and growth strong — Keynes advised that government should reduce spending and run a surplus, thereby dampening demand and lowering the chance of the economy overheating. First, government spending can reduce unemployment by directly creating jobs.
What is the difference between monetarism and classical economics?
Monetarism Monetarists are more critical of the ability of fiscal policy to stimulate economic growth. Monetarists /classical economists believe wages are more flexible and likely to adjust downwards to prevent real wage unemployment. Monetarists stress the importance of controlling the money supply to keep inflation low.
Why is monetary policy more effective than fiscal policy?
Monetarists believe monetary policy is more effective than fiscal policy (government spending and tax policy). Stimulus spending adds to the money supply, but it creates a deficit adding to a country’s sovereign debt. That will increase interest rates.
What are the criticisms of fiscal policy?
Criticisms of Fiscal Policy – Economics Help Fiscal Policy is the use of Government spending and taxation levels to influence the level of economic activity. Criticisms include – crowding out, inflationary impact, inefficiency of gov’t intervention. Monetarist and Keynesian view.
What is Milton Friedman’s economic theory of monetarism?
Milton Friedman’s Economic Theory of Monetarism Explained. Monetarism is an economic theory that says the money supply is the most important driver of economic growth. As the money supply increases, people demand more.