Question

Keynesians argue that the interest elasticity of the demand for money is

(A) low, while monetarists say it is high.
(B) unimportant in terms of affecting economic activity, while monetarists disagree.
(C) relatively high, while monetarists argue it is low.
(D) not a factor in determining if velocity is stable or unstable.

Answer 1

The correct answer is letter "C": relatively high, while monetarists argue it is low.

Step-by-step explanation:

Keynesian Economics is a school of thought in which the government plays an important role in mitigating economic recessions. It is named after British economist John Maynard Keynes (1883-1946) who argued that governments need to push against economic tides in order to loosen the impact of the boom and bust cycles that are inevitable in a free market economy.

Associated with American economist Milton Friedman (11912-2006) Monetarism states that the government must keep the money supply fairly steady, increasing it marginally each year primarily to allow the economy to grow naturally. Monetarists consider the fiscal policy as less effective than monetary policy due to the low-interest elasticity of the demand for money, opposite to the idea of Keynesians.