Question

Describe 4 differences in Keynesian economics in comparison to monetary theory.

Answer 1

1) According to Keynesian theory, expansionary fiscal policy can actually get to revive the economy when there is a recession while according to monetary theory fiscal policy don't play much of a role in recession.

2) According to Keynesian theory, unemployment and inflation have a trade-off between each other but according to monetary theory there is a relationship between unemployment and inflation but only in the short-term where they don't relate with each other in the long run

3) according to the Keynesian view, there can exist stickiness of wages which can be causing unemployment but according to monetary theory wages are flexible when there is absence of minimum wages or trade unions

4) Keynesian theory supports the view that governement should be borrowing in order to to compensate the reduction in the private spending but according to monetary theory boring should not be done much and the government should always seek balanced budget