Title: THE MONETARIST CHALLENGE TO THE KEYNESIAN VIEW
Abstract: This chapter reviews the monetarist challenge to the Keynesian view. Classical economics had very little to say about unemployment, especially the prolonged type, because it stressed the self-correcting mechanism of any market economy. Keynesian economics offered an explanation of the Great Depression and predicted the rise in the output caused by increased government demand during World War II. Major movements in money causes depressions and booms, but minor cycles are caused mainly by nonmonetary, largely unpredictable, and most importantly, uncontrollable factors. Fiscal policy, especially taxes, has negligible impact on output. Monetarists feel that primarily monetary movements determine the price level. The fall in government spending after the war did not produce the decline in output predicted. Emphasizing the importance of prices, monetarists bettered Keynesians on four major economic fronts: the long-run relationship between money and prices, the breakdown of the Phillips Curve relationship between inflation and unemployment, the role of inflation in exchange rate determination, and the connection between inflation and interest rates.
Publication Year: 1980
Publication Date: 1980-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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