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The Keynesian Theory of Money
The Keynesian Theory of Money
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
The Keynesian Theory of Money
The Keynesian theory of money is a macroeconomic theory developed by economist John Maynard Keynes. It is based on the idea that the demand for money is not just a function of interest rates, but also a function of income and uncertainty. In this theory, money plays a crucial role in determining the level of economic activity, and the government can use monetary and fiscal policy to stabilize the economy.
According to Keynes, the demand for money is determined by three motives: the transactions motive, the precautionary motive, and the speculative motive. The transactions motive refers to the demand for money to finance day-to-day transactions, such as buying groceries or paying bills. The precautionary motive refers to the demand for money to handle unexpected expenses, such as medical bills or car repairs. The speculative motive refers to the demand for money to invest in assets that are expected to appreciate in value.
Keynes argued that the demand for money is not very sensitive to changes in interest rates. Instead, it is primarily determined by changes in income and uncertainty. As income rises, people tend to hold more money to finance their transactions and to save for future expenses. As uncertainty increases, people tend to hold more money as a precautionary measure.
In the Keynesian theory, money plays a crucial role in determining the level of economic activity. When there is not enough money in circulation, businesses cannot sell their goods and services, leading to a decline in economic activity. This can lead to a vicious cycle, where declining economic activity leads to further declines in economic activity. This is known as a recession.
The government can use monetary and fiscal policy to stabilize the economy. Monetary policy refers to the actions taken by the central bank to control the money supply and interest rates. Fiscal policy refers to the actions taken by the government to change its spending and tax policies.
During a recession, the government can use expansionary monetary and fiscal policies to stimulate the economy. The central bank can increase the money supply, which reduces interest rates and makes it easier for businesses to borrow money to invest in new projects. The government can also increase its spending or reduce taxes, which puts more money in the hands of consumers, increasing their spending and stimulating economic activity.
During an economic boom, the government can use contractionary monetary and fiscal policies to cool down the economy. The central bank can decrease the money supply, which raises interest rates and makes it more expensive for businesses to borrow money. The government can also reduce its spending or increase taxes, which reduces consumer spending and slows down economic activity.
Overall, the Keynesian theory of money emphasizes the importance of money in determining the level of economic activity. It argues that the government can use monetary and fiscal policy to stabilize the economy and prevent recessions and inflation. However, the theory has been subject to criticism and refinement over the years, particularly with regards to its assumptions about the behavior of consumers and the role of expectations in determining economic outcomes.
The Keynesian Theory of Money
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QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). 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APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. 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The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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