The Monetarist and Keynesian theories present alternative views on how the money supply affects the economy.

Question

On some issues they agree but on others they disagree. This question tests your knowledge of these areas of agreement and disagreement.

Select the multiple choice option that best describes the statement below.

"The effectiveness of monetary policy on the economy depends primarily on how monetary policy influences interest rates."

A. Monetarists agree with this statement but Keynesians do not.

B. Neither Monetarists nor Keynesians agree with this statement.

C. Monetarists and Keynesians agree with this statement.

D. Keynesians agree with this statement but Monetarists do not.

Answer 1

D. Keynesian's agree with this statement but Monetarists do not.

For Keynesian's IS-LM model show it all, but for Monetarists - they believed that higher interest rates is due to excessive fiscal policies.