Reference no: EM133408997

Question: Should the government use monetary and fiscal policy to stabilize the economy, or should it adhere to policy rules and refrain from upsetting the economy? To answer this question, compare the view of Keynesian economics to Monetarist economists.

Case Study: The main difference between Keynesian and Monetarist economists is that Keynesian economists believe in more government intervention by increasing government spending while Monetarist economists tend to be more patient and will "let things play out". Monetarism is basically the belief that controlling the money supply and that letting the economy fix itself are the key factors in economic stabilization. While, Keynesian economists do acknowledge Monetarism, Keynesianism is more geared toward a faster stabilization since temporary inflation and a recession could be in a sense too long. I believe that Monetarism is the correct approach, and with the aide of slight Keynesian tactics in government spending is the best way to stabilize an economy in the short and long run. So the government should essentially use monetary and fiscal policy but with careful moderation since too much government intervention can prove to be more harm than good and it could have a much longer lasting increase in inflation since the right shift in aggregate demand could be accompanied by a left shift of aggregate supply which results in an increase in price level but not an increase in output.