Which of the following best describes the classical and the Keynesian views on the monetary neutrality? Classical economists believe in slow adjustment of prices, but Keynesians argue that price adjustment does not take long. Keynesians believe that money affects employment and output in both short-run and long- run, but classical economists argue that money is neutral in both short-run and long-run. Both classical and Keynesian economists believe in monetary neutrality in the long-run, but they disagree in the speed of price adjustment. Classical economists believe that money is neutral, but Keynesians do not.
Monetary Policy and Equation of Exchange
The monetary policy has been defined as the policy that is used by the Federal Reserve (the central bank of the US) or the central bank (the central bank of India is RBI) along with the use of the supply of money to accomplish certain macroeconomic policies. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.
Monetary Economics
As from the name, it is very evident that monetary economics deals with the monetary theory of economics. Therefore, we can say that monetary economics, is that part of economics that provides us with the idea or notion of analyzing money as a holding with its function, which acts as the medium of exchange, the store of value through which the buying and selling are done and also the unit of account. It also helps in formulating the framework of the monetary policy of a bank in an economy which ultimately results in the welfare of the people residing in that particular economy. The monetary policy of an economy also helps to analyze and evaluate the financial health of it.
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