what is the difference between monetarism and keynessianism?

Answer 1

Monetary policy is a government policy concerning money and credit conditions, especially the rate of growth in the money supply and the level of interest rates. It utilizes the countercyclical monetary policy which is a policy of the central bank (Federal Reserve USA ::: Chairman of the Federal Reserve Dr. Ben S. Bernake---formally Alan Greenspan) designed to stabilize economic activity, usually by increasing the rate of growth of the money supply during recessions and decreasing the rate of growht of the money supply in infationary periods.

Keynessianism is derived from the theories of John Maynard Keynes, advocating government spending and taxation to taintain full employment and stable economy. Current Chairman of the Fed, Dr. Ben S. Bernake is a Keynessianest. All Keynesian analysis fouses on the aggregate demand for goods and services. It assumes that aggregate supply is sufficient to accommodate increased demand without raising prices. Any increases in aggregate demand at full employment will raise prices and cause inflation. Supply-side policies emphasize the need to generate increased real output at or near full employment.

Answer 2

Monetary policy tends to work via money supply and interest rates and works on the supply side of things. Boost an economy by cutting interest rates so that, for example, companies borrow more and invest more and increase supply of goods and services.

Keynesianism works on the demand side. Boost and economy by spending more on road building. This gets people more jobs and make them demand more goods and services.

The key difference is what people believe is the effectiveness of the policies. If you are looking at an ISLM framework, this is seen by what each camp believes is the slope of the curves. Monetarists see a flat IS curve and steep LM curve (increasing Gvt spending shifts the IS curve right, but the main effect is on interest rates, not Income). Keynesians see a steep IS curve and flat LM curve (shifting the IS curve has a larger effect on income than interest rates).

Answer 3

I think that you know what Keynessiam is, so I will skip that. In comparison, Monetarists believe that the driving factor in the economy is the money supply, and simply neglect the demand for money as irrelevant. They are primarily concerned with rate of inflation. Grenspan is a monetarist.

Answer 4

In a nutshell, in the assessment of the importance of fiscal policy. Orthodox monetarists believed that fiscal policy is too slow, while Keynesians pointed out that monetary policy is useless in a liquidity trap and a liquidity trap can only be overcome by fiscal means.