Expansion of the money supply during a recession, according to the keynesians, will?

1 answer:

3 0

According to the Keynesian approach an increase in the money supply increases real GDP by lowering interest rates which increases investment.

The Keynesian theory implied that during a recession inflationary pressures are low, but when the level of output is at or even pushing beyond potential gross domestic product, or GDP, the economy is at greater risk for inflation.

Keynesians do believe in an indirect link between the money supply and real GDP. They believe that expansionary monetary policy increases the supply of loanable funds available through the banking system, causing interest rates to fall.

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