Macroeconomics: Views of Friedman, Lucas, Krugman and Marxist Economists

Running head: MACROECONOMICS
Macroeconomics
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Answer 5:
Milton Friedman: Friedman, one of the monetarists, has supported Keynesian view during
1941 to 1943. However, the economist has changed his mind later after realising that
Keynesian view has ignored the impact of money supply, inflation and importance of
monetary policy in an economic cycle. As a result, definition of Keynes related to recession
has been considered by monetarists while remedy for this recession has been rejected by
them. According to Friedman, the government cannot increase or decrease money supply
because this change can adversely affect economic condition of a country. In “Quantity
Theory of Money” and “The role of monetary policy”, Friedman has discussed about quantity
theory related to money and the expectations related to augmented theory of Phillips Curve
(Teles, Uhlig & Valle e Azevedo, 2016). With the help of those articles, Friedman has
intended to deliver some ideas of controlling money supply to control inflation and to explain
the failure of the Phillips Curve during 1970s. Those concepts are deviated from the
Keynesian theory.
Thus, the above discussion has pointed out the chief reason that why monetarists have
deviated their concepts from Keynes. The difference between monetarist economic theory
and Keynesian economic theory can be drawn. The Monetarist economics deals with
controlling of money within an economy while Keynesian economics considers demand-side
economics (Lagos, Rocheteau & Wright, 2017). However, those Keynesian economists have not
rejected the role of money supply and its impact on gross national product within an
economy.
R.E. Lucas: Lucas, an American economist, has also stated against Keynesian economics
and has supported the new classical approach. Within 1970s and 1980s, macroeconomics has
experienced a drastic change after which IS-LM concept of Keynes has been replaced by
dynamic stochastic general-equilibrium model. According to Keynes, an economy cannot

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achieve full employment. In this context, Lucas has argued that Keynes has not followed the
equilibrium discipline. This is because Keynes has proposed his weak point of view regarding
involuntary unemployment. Moreover, he has ignored the role of public reaction related to
economic policy and the role of market mechanisms though he has focused on the
government intervention in an economy (Mankiw & Reis, 2018). In addition to this, Keynes
has ignored decisions taken by an individual. Thus, Lucas has said that any changes related to
policy can bring a negative impact through changing the structure of the econometric models
and consequently problems can occur when those changing policies affect private sectors. In
his article “Economic Policy Evaluation: A Critique”, Lucas has stated that Keynes has done
a good job on macroeconometric models to forecast. However, those models have failed to
assess alternative policies. Due to lack of macrofoundations, these models have missed to
focus on the fact that agents can change their decisions after experiencing a change related to
the institutional regime.
Paul Robin Krugman: Krugman, on the contrary, has supported the economic view of
Keynes. During 2008-2009, he has remained one of the best advocates of the Keynesian
resurgence. This Keynesian resurgence has considered discussion and implementation of
economic policy among policy makers and economists. In this resurgence, Keynes has
recommended expansionary monetary policy and fiscal stimulus during the Great depression.
After that, Krugman has created proposal from his economic point of view for utilising fiscal
stimulus policy in a better way to develop economic condition further and to decrease
unemployment rate (Benigno, 2015). According to Krugman, Keynes has thought about the
way through which an economy can increase its demands. Hence, in his book “The Return of
Depression Economics and Crisis”, Krugman has researched about the Mexican crisis and the
global financial crisis of 2008. Moreover, he has found out that the main question is to create
a sufficient demand. Hence, Krugman has established a new trade policy by describing that