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"Keynesian policies are incompatible with price stability" "Monetarist's policies are incompatible with full employment". Discuss the validity of these two statements.
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"Keynesian policies are incompatible with price stability" "Monetarist's policies are incompatible with full employment". Discuss the validity of these two statements Every school of thought is like a man who has talked to himself for a hundred years and is delighted with his own mind, however stupid it may be. (J.W. Goethe, 1817, Principles of Natural Science) Keynesian policies are incompatible with price stability. How? * Markets need help to clear o The economy can be at equilibrium at many different times, not just at full employment * When inflation increases, tighter monetary policy may be used to cool it off, which will weaken AD? Is this contrary to Keynesian belief? * Keynesian economics is a theory of total spending [AD] in the economy and its effects on output and employment o AD is influenced by public & private economic decisions, which are determined by political outcomes/economic objectives or consumer/producer expectations o Some Keynesians believe in...
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