Monetarist and Keynesian Theory of Money

Monetarist and Keynesian Theory of Money


Even though monetarist and Keynesian Theory of Money all try to achieve the same goal of explaining the factors that are fundamental to driving economic cycle and prescribe policies that are the best to restore the growth during both depression and recession, the two theories differ a lot especially on the approach taken. Keynesian Theory of money was Economist John Maynard Keynes while economist Milton Friedman created the Monetarist theory among others.

From the article, the critical difference between the two theories is that while the Keynesian theory of money emphasizes on government spending as a means of stabilizing the economy, monetarists emphasize inflation. According to Keynesian theory, government spending is a core tool in regulating the stability of the economy. This is through increasing government expenditure during a recession to entice households to continue spending and reducing expenditure during the depression. On the other hand, monetarists argue that the health of the economy should be stabilized by controlling the money supply in the economy. The primary focus on this theory unlike Keynesian on inflation. During times of inflation, the money supply should be decreased and increase during deflation. This will help to keep inflation to its low levels. According to this theory, the money supply should be maintained within a specific range, not too high or too low for any economic environment. This is what I learned from this article.

However, what surprised me is how government expenditure can be used to take the economy out of recession. This made me do further research to find out various ways of government expenditure used to stabilize the economy.

According to an article by Sansket Suman on Government expenditure, government expenditure consists of all expenditure by federal and state governments .the various ways through which the government spends to regulate economy include government consumption through the purchase of goods and services, transfer payments payment and payment of interests on borrowed funds. Through regulation of this spending, the government can stabilize the economy. This article was helpful.



Motley Fool Staff. (2016, January 29). What Are the Differences Between Monetarist Theory and Keynesian Theory of Money? Retrieved from

Sanket, S. (2015, October 26). Government Expenditure: Subject Matter, Categories and Principles. Retrieved from


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