Monetary Policy Question (Keynesian)?
Why are Keynesians more likely to advocate expansionary monetary policy to eliminate a recessionary gap than contractionary monetary policy to eliminate an inflationary gap?
Why are Keynesians more likely to advocate expansionary monetary policy to eliminate a recessionary gap than contractionary monetary policy to eliminate an inflationary gap?
outis
Favorite Answer
Keynesians in general see a recession as a lack of demand. Therefore an expansionary monetary policy will increase demand through money illusion and get people to spend more. According to the Phillips curve,(which has been shown to be flawed) an increase in the money supply will lead to lower unemployment.
On the opposite side there are those who contend we should do the opposite in order to control inflation. This however does not make use of the money illusion and will actually decrease demand according to keynesians. Because they see recessions as a lack of demand this would not be a good option in order to get out of a recession.
crupi
In Classical economics it fairly is believed that the industry is acceptable and self preserving, that government shouldn't intrude, furnish equals call for and that the industry as entire adjusts as a effect. In Keynesian economics believes that the industry is imperfect, equilibrium ought to contain unemployment and unfavourable strengthen, and that decision for as an entire could be inspired via client and government spending.