Monetary Policy

| |Classical |Keynesians |Monetarists |

|Function of money in an |The classical economists were of the view that money was |Keynes emphasized its role as a “store of value.” |Medium of exchange and a store of value |

|economy |discovered to remove the defects of barter. The important | | |

| |functions of money for them were to serve as a medium of | | |

| |exchange and standard of material. | | |

|Reasons for holding money |Medium of exchange and standard of material or in other |Keynes posited that people held money for three |Monetarists concede that money might be |

| |words for transactions purposes only. |reasons, namely: transactionary, precautionary and|demanded for reasons other than anticipated|

| | |speculative. |transactions, such as wealth and the |

| | | |interest rate. |

|Is money significant in an|There is a direct proportional relationship with the price |Money is significant as increases in the supply of|Monetarists believe money to be an |

|economy? |level. |loanable funds available through the banking...