Write a short notes on superiority of kynes analysis of money and price over the classical analysis
Answers
Explanation:
pls keep me brain listpls
Keynes does not agree with the older quantity theorists that there is a direct and proportional relationship between quantity of money and prices. According to him, the effect of a change in the quantity of money on prices is indirect and non-proportional.
Keynes complains “that economics has been divided into two compartments with no doors or windows between the theory of value and the theory of money and prices.” This dichotomy between the relative price level (as determined by demand and supply of goods) and the absolute price level (as determined by demand and supply of money) arises from the failure of the classical monetary economists to integrate value theory with monetary theory. Consequently, changes in the money supply affect only the absolute price level but exercise no influence on the relative price level.
Further, Keynes criticises the classical theory of static equilibrium in which money is regarded as neutral and does not influence the economy’s real equilibrium relating to relative prices. According to him, the problems of the real world are related to the theory of shifting equilibrium whereas money enters as a “link between the present and future”.