Answer to Question #285281 in Microeconomics for Jordan

Question

Explain in detail the value of money propounded by classical and Keynesian economics

Answer 1

According to Keynesian theory, Increase in value for money affects the aggregate money demand such that an increase in quantity of money increases aggregate demand for money which spurs investments. As result of increase in money quantity and desire for investment, the interest rate decreases. According to Keynes, employment and output are respectively but does not have any effect on price levels of goods and services. 

Classical economics argue that value of money is key to determining the price level of goods and services in the economy. Essentially, classical economists believe that money is the medium of exchange. Households control their consumption based on the value of goods and services which is affected by the value of money.