Table of Contents
- 1 What is the difference between Keynesian and supply side economics?
- 2 Why do Keynesian economists believe that government has to intervene on the side of demand in a recession?
- 3 Does Keynesian economics cause inflation?
- 4 How does increasing supply help improve the economy?
- 5 How does an increase in money supply affect unemployment in the short run?
What is the difference between Keynesian and supply side economics?
While Keynesian economics uses government to change aggregate demand with the encouragement to increase or decrease demand and output, supply-side economics tries to increase economic growth by increasing aggregation supply with tax cuts.
Why do Keynesian economists believe that government has to intervene on the side of demand in a recession?
Under the demand-side model, Keynes advocated for government intervention to help overcome low aggregate demand in the short-term, such as during a recession or depression, to reduce unemployment and stimulate growth.
Does Keynesian economics cause inflation?
In the Keynesian economic model, too little aggregate demand brings unemployment and too much brings inflation.
Why do monetarists think that increasing the money supply will lead to inflation?
Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.
How do monetarists derive the demand for money?
Monetarism is an economic school of thought which states that the supply of money in an economy is the primary driver of economic growth. As the availability of money in the system increases, aggregate demand for goods and services goes up.
How does increasing supply help improve the economy?
Improved economic growth Supply-side policies will increase the sustainable rate of economic growth by increasing LRAS; this enables a higher rate of economic growth without causing inflation.
How does an increase in money supply affect unemployment in the short run?
A money supply increase will raise the price level more and national output less the lower the unemployment rate of labor and capital is. A money supply increase will raise national output more and the price level less the higher the unemployment rate of labor and capital is.