Why are Monetarists dependent on the monetary (flow of money and the supply of money) side...

Why are Monetarists dependent on the monetary (flow of money and the supply of money) side of the economy, and the Keynesians dependent on aggregate demand? Is there a significant difference? Explain

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Expert Solution

The fluctuation in the economy corrected by using monetary and fiscal policy. There exists controversy among economist which policy is more effective in correcting fluctuation(Deflation and Inflation) in the economy.

According to the Monetarist, it is monetary policy is the more effective supply of money in the economy causes the fluctuation example excess supply of money supply leads inflation in the economy.Likewise reduction in money supply results in deflation.Only monetary policy tools are effective correcting such fluctuation.

Another hand J.M.Keynes believes that it fiscal policy tool is more powerful compared to monetary policy in controlling inflation and deflation situation in the economy.The aggregate demand deficiency causes for such fluctuations and fiscal policy tool is more effective in correcting such problem.

Thus the two schools of the economic thought differ from policy and tools.

Rahul Sunny answered 1 year ago

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