Keynesian vs. Monetarist Economics Flashcards
Who developed Keynesian economics?
John Maynard Keynes
Who developed monetarism?
Milton Friedman
Keynesian and monetarist economics were both developed in the 20th century.
When was each one developed?
Keynesian - first half of the 20th century
Monetarism - second half of the 20th century
What is the core principle of Keynesian economics?
That markets are not good at allocating resources on their own; fiscal policy by an interventionist government is needed to manage the economy
What is the core principle of monetarism?
That resources are best allocated through a free market; stable monetary policy is best for managing the economy
Under Keynesian economics, strategic government spending is thought to…
Give 2 things
- Spur consumption / investment
2. Alleviate unemployment
Give 3 things that are called for under monetarism.
- Deregulation of most areas of the economy
- Free trade
- A steady increase in the money supply
What critique does monetarism make of Keynesianism?
That expansionary fiscal policy has negative, long-term effects.
Employment, interest and public policy are all key areas of focus for…
Keynesianism
Prices, inflation and human incentives are all key areas of focus for…
Monetarism
Keynesianism has been called a ‘pseudoscientific justification’ for what? Why?
Short-sighted politicians who run fiscal deficits and accumulate massive amounts of government debt
This was because three decades of Keynesianism ended in stagflation in the 1970s, which many Keynesians thought was impossible
What is stagflation?
A decline in GDP during a period of inflation
