Question

The effectiveness of monetary policy depends primarily on how monetary policy influences interest rates.

Answer 1

Answer: Option A

Explanation: The fundamental difference between the theories believed by Keynesians and Monetarists is that the former believe in relying on government expenditure to bring out the economy out of depression, whereas, the latter believe in curtailing the monetary policy of the government in order to tackle the depression. Though 'monetary policy' is much of the Monetarist's interest, Keynesians do not disregard its impact on the economy. When it comes to 'interest rates', Keynesians also believe that it is a result of effective monetary policy.

Answer 2

Keynesians agree with the above statement, but monetarists do not.

Answer: Option D

Explanation:

Monetary policy is nothing but a policy followed by the central bank or any other banking agencies' authorities. As they can include control of money supply and interest rate that in turn helps the government to create growth in economic.

Keynesians also believe in the fact money supply has some relation with the growth f the country’s economy. They literally don’t mind about the rate of interest and the time provided to it. But Monetarists strongly believe in controlling the money in the economy.