the main area of debate between Keynesian and Monetarist economists.
believe that governments should manage the level of aggregate demand in order
to remove inflationary and deflationary gaps as well as smooth out the
effects of cyclical fluctuations in national income.
feel that governments shouldn’t engage in such policies.
They claim such policies will at best be ineffective and at worst
actually be de-stabilising.
Conservative and Labour governments pursued a policy of demand management
throughout the 1960s and 1970s until stagflation gripped the UK economy.
Thatcher opted for Monetarist supply side policies which set the tone
for UK economic policy through the 1980s and 1990s.
side policies aim to shift both the SRAS and LRAS to the right, which will
lead to a reduction in the price level and an increase in national income.
This will lead to a reduction in unemployment, shifting the Phillips
Curve inwards. Monetarists state that supply side policies should be used to
free up the market and reduce the amount of government intervention, e.g.,
deregulation, provide incentives and encourage private enterprise.
Keynesians also believe in supply side policies, but of a more
interventionalist nature, e.g., training schemes and regional grants.
Way” Supply Side Policies
election of the labour government has brought about a third way, a mixture of
Monetarist and Keynesian supply side policies.