Classical - Adam smith
Causes of inflation: Excess money supply
Causes of unemployment: Short run price and wage adjustment
Stability of economy: Stable in the long run at full employment
Effects of monetary policy: changes aggregate demand and prices
Effects of fiscal Policy: Not necessary
Price wage Flexibility: Yes
Velocity of money: stable
Keynesian – John Maynard Keynes
Causes of inflation: Excess aggregate demand
Causes of unemployment: Inadequate aggregate demand
Stability of economy: Inherently unstable at less than full employment
Effects of monetary policy: changes in interest rate, which changes investment and real GDP
Effects of fiscal Policy: Spending multiplier Changes aggregate demand
Price wage Flexibility: No
Velocity of money: Unstable
Monetarist – Milton Fried man
Causes of inflation: Excess money supply
Causes of unemployment: Short run price and wage adjustments
Stability of economy: Stable in the long run at full employment.
Effects of monetary policy: Changes aggregate demand and prices
Effects of fiscal policy: No effect because of crowding out effect
Price wage flexibility: yes
Velocity of money: Predictable
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