Using diagrams and examples, compare and contrast the Classical economists’ Quantity Theory and the
Keynesian’s Liquidity Preference Theory of money demand.
Classical economics focuses less on utilization of fiscal policy in managing aggregate demand. The theory is based on monetarism, which focuses on controlling supply of money by the monetary policy while the Keynesian liquidity preference theory highlights that the government is entitled to fiscal policy in controlling instincts such as recession.
Below are the graphs.
Classical view of LRAS
Keynesian view of LRAS