Question

If you use a source, please list below. Please summarize in a paragraph.

What do the Keynesians say should be the conduct of monetary policy? What do Classicals say should be the conduct of monetary policy

Answer 1

Keynes was in favor of fiscal policy over monetary policy. According to him, monetary policy is ineffective.

Keynes gave the concept of investment multiplier, the marginal efficiency of capital and interest rate. He believes long-run equilibrium is characterized by unemployment and monetary policy changes interest rate to change the long run equilibrium.

Classical theory directly relates money supply and price. MV = PY where M is money supply, V is velocity of currency circulation, P is general price level and Y is real output. Expansionary monetary policy increase money supply by increasing supply of loanable demand and decreasing interest rate.