Reading 23: Aggregate Supply and Aggregate Demand-LOS d 习题精

Monetarists believe that monetary policy has a significant impact on aggregate demand. Because of timing problems, most monetarists believe that discretionary monetary policy should not be used to stabilize the economy. Keynesian economists believe shifts in aggregate demand arise primarily from changes in expectations. Classical economists believe money wages tend to adjust quickly; both monetarists and Keynesians believe wages are “downward sticky.”

The classical economists believe that shifts in both aggregate demand and aggregate supply are primarily driven by changes in technology over time. Keynesian economists believe that aggregate demand can be increased through monetary policy (increasing the money supply) or through fiscal policy (increasing government spending, decreasing taxes, or both). They do not focus on aggregate supply. Monetarists believe that the main factor leading to business cycles and deviations from full-employment equilibrium is monetary policy.

Monetarists believe that to keep aggregate demand stable and growing, the central bank should follow a policy of steady and predictable increases in the money supply. Furthermore, monetarists believe that recessions are caused by inappropriate decreases in the money supply and that recessions can be persistent because money wage rates are downward sticky.