Answer to Question #15131 in Economics of Enterprise for babu
Neoclassical and Keynesian economics significantly differ on the effects and effectiveness of monetary policy on influencing the real economy; there is no clear consensus on
how monetary policy affects real economic variables (aggregate output or income,
employment). Both economic schools accept that monetary policy affects monetary
variables (price levels, interest rates).
Monetary policy relies on a number of tools: monetary base, reserve requirements, discount window lending and interest rate expansion of the monetary supply can be achieved indirectly by decreasing the nominal interest rates.
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