Question

Explain what an expansionary monetary policy (that increases the stock of money M) will do to the macroeconomy according to the following schools of thought:

a. the Austrian school of thought

b. the Keynesian school of thought

c. the New Classical school of thought

d. Explain how the differing assumptions between the three schools of thought lead to different conclusions about the effect of the policy.

Answer 1

Ans.

An expansionary monetary policy (that increases the stock of money M) will do following to the macroeconomy according to the following schools of thought:

c. the New Classical school of thought
Neoclassical analysis relies on the concept of general equilibrium—that is, all markets will reach equilibrium because of the “invisible hand, or free market,” and the price will be found for every good at which supply equals demand. Therefore, this will have no impact on the economy. Money was not necessary in the neoclassical model, because the exchange of goods and services could occur in the form of barter and still reach general equilibrium

a. the Austrian school of thought

Austrian believe that fluctuations in the economy are caused by governments that try to increase GDP and employment by adopting expansionary monetary policies
b. the Keynesian school of thought
Keynesian argued that when crises occur, the government should intervene to keep capital and labor employed by deliberately running a larger fiscal deficit. In this case the economy will grow and it will have positive impact on the economy.