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Briefly describe the effects of an increase in the money supply in a. the classical model....

Briefly describe the effects of an increase in the money supply in

a. the classical model.

b. the Keynesian model.

c. the monetarist model.

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Answer #1

Classical model

  • When there will increase in money supply in classical model there will no change in income level , employment level and real wage rate but there will be change in monetary variable which will change proportionally .Therefore increase in money supply in classical model will have neutral effect

Keynesian model

  • Increase in money supply will have no effect in Keynesian model. That is even when the increase in money supply will lead to fall in interest rates but there will not be any change in the aggregate Demand in the economy

Monetarist model

  • When there will be increase in money supply then according to monetarist model there will increase in economic activity and economic growth .Increase in money supply will lead to increase in price level will be more than the production of goods and services when the economy is close to full employment level
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