Compare and contrast these three approaches to monetary policy. Include in your analysis if monetary...

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Compare and contrast these three approaches to monetary policy. Include in your analysis if monetary policy is considered effective under all the schools. Moreover, what is the role of money in the economy? What causes inflation?

Bidusha · Accepted Answer

Monetary Policy		4
MONETARY POLICY
Table of Contents
Contrast and Comparison	3
Effectiveness	4
Role of Money in Economy	4
Causes for Inflation	4
References	6
Contrast and Comparison
The Quantity Theory of Money, according to the Classical perspective, is MV = PY, where V and Y are constant. A proportionate increase or reduction in money amount causes a proportional increase or decrease in price level. Contractionary and expansionary monetary policies were also mentioned by the Classicals (Twinoburyo & Odhiambo, 2018). Inflation is caused by expansionary monetary policy, whereas deflation is caused by contractionary monetary policy. Money's efficacy is neutral, and real-world factors like as output and employment are unaffected by monetary variables (classical dichotomy). 
Money has a little part in economic operations, yet it is used as a medium of exchange for transactions. The Keynesians proposed the idea that when the money supply expands, interest rates fall, investment rises, and production rises. They disagree with the Classicals' assumptions about the Quantity Theory of Money, claiming that Y is not always constant and V is not always fixed (Twinoburyo & Odhiambo, 2018). The following are some of the reasons why the efficacy of monetary policy may be lessened, according to Keynesians:
- The Liquidity Trap,

Compare and contrast these three approaches to monetary policy. Include in your analysis if monetary policy is considered effective under all the schools. Moreover, what is the role of money in the...

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