Any easier way to memorize the similarities & differences among these 3 beliefs. Below is my (hard to remember) notes ClassicalEconomists: Shifts in both AD & AS are driven by changes in technology over time. money wages changes rapidly to restore LR full employment equilibrium.Taxes are primary impediment to LR & GDP Keynesian: Business cycles are caused by shifts in AD due to changes in expectations. Wages are “downward sticky,” SRAS does not shift up, recessions can be prolonged.To restore full employment, increase AD directly through monetary or fiscal policy New Keynesian: Prices of other productive inputs are also “downward sticky,” another barrier to the restoration of full-employment equilibrium Monetarists: Monetary policy is the main factor leading to business cycles.Recessions are caused by inappropriate decreases in the money supply. Recessions can be persistent because money wage rates are downward sticky.The central bank should follow a policy of steady and predictable money supply growth.The best tax policy is to keep taxes low to minimize disruption and distortion
classical: free markets, less govt intervention (taxes/monetary stimulus), mrkts are efficient and will ‘self-correct’ over time keynesian: pretty much what approach govt has taken in recent past to deal with flucuations of bus cycle, inc money supply and lower rates during recessionary phases, and reduce money supply, raise rates during expansions. monetarists: middle of road approach, less intervention than keynes but more than classical will allow economy to reach potential, stable prices, full employment
Classical- Markets are efficient, government intervention= bad Keynesian- money wage rate will not adjust AS downward very fast, so government must increase AD fix recessionary gaps. Monetarist- money wage rate is also sticky, monetary base should grow at the same rate as potential GDP.