Keynesianism emphasises the role that fiscal policy can play in stabilizing the economy. It suggests that higher government spending in a recession can help the economy recover quicker.
Monetarism emphasises the importance of controlling the money supply to control inflation. Monetarists are generally critical of expansionary fiscal policy arguing that it will cause just inflation or crowding out and therefore not help.
During this current severe recession, I would think Keynesian economics may offer a better solution. Unemployment is a big problem that needs a solution from the government. People are spending less and less because they will not know whether they will have job and money in the future; and hence business will not do well which implies that business sectors will not hire; which makes unemployment worse. Government needs to do more to create jobs to the people. If the private sectors and government are not hiring, the unemployment rate will not go down. Government’s stimulus plans have to have short-term and long-term help in unemployment.
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