fields of macroeconomics. It was partly instrumental in the development of national income accounting, which measures the components of GNP-consumption, investment, government spending and net exports. The Keynesian approach also stimulated analysis of the factors influencing these components of GNP. For example, economists have analyzed how aggregate consumer demand is related to income levels and how likely it is to change when rates of interest change. Money Supply Theories regarding the money supply are central to macroeconomics. They are also the subject of debate between Keynesians and monetarists (economists who believe that growth in the money supply is the most important factor that determines economic growth). The classical or pre-Keynes view was that the interest rate led to a balance between savings and investment, which in turn would cause equilibrium in the goods market. Keynes disagreed and believed that the interest rate was largely a monetary phenomenon; its chief function was to balance the unpredictable supply and demand for money, not savings and investment. This view explained why the amount of savings was not always correlated with the amount of investment or the interest rate. Keynesians and monetarists also disagree about how changes in the money supply affect employment and output. Some economists argue that an increase in the supply of money will tend to reduce interest rates, which in turn will stimulate investment and total demand. Therefore, an alternative way of reducing unemployment would be to expand the money supply. Keynesians and monetarists disagree on how successful this method of raising output would be. Keynesians believe that under conditions of underemployment, the increased spending will lead to greater output and employment. Monetarists, however, generally believe that an increase in the money supply will lead to inflation in the long run. Inflation For several decades after World War II (1939-...
