Essay About Aggregate Demand And Objective

Monetarism Vs. Keynesian
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Monetarism vs. Keynesian
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Objective: My objective is to try to compare the Aggregate Demand – Aggregate Supply
Model from the Monetarism and Keynesian interpretation. Here is a brief history of what I have
read. What I get about the Keynesian Macroeconomics is, it was created in the early 1970s, and
was the work of economists centered at the Universities of Chicago and Minnesota. The main
players that created this concept according to (Hoover) were “Robert Lucas, Thomas Sargent,
Neil Wallace, and Edward Prescott”. The name is from John Maynard Keynes his different style
between his own Macroeconomics and his forebears, Keynes had knowingly stretched a point by
comparing his forebears A.C. Pigou and Alfred Marshall, from the older classical political
economists such as David Richardo, this is where the name Classical comes from. According to
(web.books) “the classics saw the price system in a free economy as efficiently guiding the
mutual adjustment of Aggregate Demand and Supply in all markets”, this was including the
labor market. Unemployment would arise only because of a market fault with the intervention of
the government or the action of Labor Unions and could be eliminated through removing the
faults. In contrast, Keynes shifted the focus of his analysis away from individual markets to the
whole economy. He argued that even without market faults, aggregate demand might fall short of
the aggregate productive capacity of its labor and capital such as plants, equipment, raw material,
and infrastructure. In which a situation of unemployment is largely involuntary that is, workers
Monetarism vs. Keynesian
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might be unemployed even though they are willing to work for a lesser pay than the wage the
firms are paying their current workers.
Support: The fundamental principle of the Monetarism theory is that the economy is
self-regulating. Monetarism economists maintain that the economy is always capable of
achieving the natural level of real GDP or output, which is the level of real GDP that is
obtained when the economys resources are fully employed. Monetarists are more critical of
ability of fiscal policy to stimulate growth in real GDP. Monetarists/Classical economists
believe