Keynesian Monetary Demands vs. Post Keynesian Monetary Demand
What's the Difference?
Keynesian Monetary Demand focuses on the relationship between the demand for money and the interest rate, emphasizing the role of interest rates in influencing economic activity. Post Keynesian Monetary Demand, on the other hand, takes a broader view of the factors influencing the demand for money, including income distribution, financial market imperfections, and the role of government policies. While both approaches are rooted in Keynesian economics, Post Keynesian Monetary Demand theory incorporates a more nuanced understanding of the complexities of the financial system and its impact on the economy.
Comparison
| Attribute | Keynesian Monetary Demands | Post Keynesian Monetary Demand |
|---|---|---|
| Definition | Refers to the total amount of money that households and firms want to hold in the form of cash balances | Refers to the demand for money as a store of value and medium of exchange |
| Focus | Focuses on the relationship between money demand and interest rates | Focuses on the role of money in the economy and its impact on economic activity |
| Key Theorist | John Maynard Keynes | Various post-Keynesian economists |
| Policy Implications | Advocates for government intervention to manage aggregate demand through monetary policy | Emphasizes the importance of fiscal policy and government spending in managing the economy |
Further Detail
Keynesian Monetary Demand
Keynesian monetary demand is a concept that was developed by the economist John Maynard Keynes. According to Keynes, the demand for money is determined by three main factors: transactions demand, precautionary demand, and speculative demand. The transactions demand for money is based on the need for individuals and businesses to conduct day-to-day transactions. The precautionary demand for money is based on the desire to hold money for unexpected expenses or emergencies. The speculative demand for money is based on the desire to hold money as a store of value in anticipation of future changes in interest rates.
Keynesian monetary demand is influenced by changes in income, interest rates, and expectations about the future. When income increases, individuals and businesses tend to hold more money for transactions. When interest rates rise, the opportunity cost of holding money increases, leading to a decrease in the demand for money. Expectations about future changes in interest rates can also impact the speculative demand for money.
Post Keynesian Monetary Demand
Post Keynesian monetary demand builds on the concepts developed by Keynes but takes a more dynamic and flexible approach. Post Keynesian economists argue that the demand for money is not solely determined by income, interest rates, and expectations, but also by institutional factors, power relations, and the distribution of income and wealth.
Post Keynesian monetary demand emphasizes the role of uncertainty and liquidity preference in shaping individuals' and businesses' decisions about how much money to hold. Uncertainty about the future can lead to an increase in the precautionary demand for money, as individuals and businesses seek to hold more liquid assets to protect themselves against unforeseen events. Liquidity preference refers to the desire to hold money as a form of wealth that can be easily converted into other assets.
Comparison of Attributes
- Keynesian monetary demand focuses on income, interest rates, and expectations, while post Keynesian monetary demand considers institutional factors, power relations, and the distribution of income and wealth.
- Keynesian monetary demand is more static and deterministic, while post Keynesian monetary demand is more dynamic and flexible.
- Keynesian monetary demand emphasizes the role of transactions, precautionary, and speculative motives, while post Keynesian monetary demand emphasizes uncertainty and liquidity preference.
- Keynesian monetary demand is more widely accepted in mainstream economics, while post Keynesian monetary demand is considered a heterodox approach.
- Keynesian monetary demand is often used to analyze short-term fluctuations in the economy, while post Keynesian monetary demand is used to analyze long-term trends and structural changes.
In conclusion, while Keynesian monetary demand and post Keynesian monetary demand share some similarities in their focus on the demand for money, they differ in their underlying assumptions and approaches. Keynesian monetary demand is more traditional and deterministic, focusing on income, interest rates, and expectations, while post Keynesian monetary demand takes a more dynamic and flexible approach, considering institutional factors, power relations, and the distribution of income and wealth. Both approaches have their strengths and weaknesses, and understanding the differences between them can provide valuable insights into the complexities of monetary demand in the economy.
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