Comparison between classical monetary theory and Keynesian monetary theory Classicism is the development and extension of classical macroeconomics to the economic theory of rational expectation school, which inherits the basic ideas of rational expectation school and takes rational expectation, market clearing and natural interest rate hypothesis as the basic assumptions. The main theoretical viewpoints of classical macroeconomics focus on the analysis of economic cycle. In this respect, classical macroeconomics can be divided into monetary economic cycle school and real economic cycle school. According to the theory of monetary economic cycle, if the government's policy of changing aggregate demand is expected by the public, the aggregate supply curve will increase with the improvement of aggregate demand curve, thus offsetting the influence of aggregate demand on output. Therefore, the expected currency shock only affects the price level and does not affect the actual output. If the influence of money supply is not predicted, the increase of total demand caused by the increase of money can have an impact on output and employment when people's price expectations are fixed. People's expectations of the overall price level cannot be adjusted at any time because the market is incomplete and the information is incomplete. Therefore, the monetary factor is the initial source of economic fluctuations. According to this analysis, classical macroeconomists believe that government policies are generally ineffective and sometimes even harmful. The theory of real economic cycle explains economic fluctuation from the change of actual factors. According to this theory, the quantity of money is adjusted according to the change of output, and the change of output causes the change of money stock, thus causing economic fluctuations. The factors that lead to the change of actual output include the innovation of production technology, the development of new products, climate change, changes in raw materials and energy prices, etc. With regard to economic policy, classical macroeconomics opposes government fiscal policy and monetary policy that support discretionary decision-making. Although the theory also acknowledges that government policies will have an impact on output and employment, it is difficult to define the effect of this impact because of the rational expectations of economic parties. Therefore, the theory advocates learning a single rule of monetarism. Keynesianism emphasizes the discussion on the micro-causes of market failure. Its basic theoretical assumptions are: non-market clearing, economic maximization and rational expectation. Regarding the non-market clearing, Keynesianism mainly explains it from the viscosity of wages and prices. In response to various shocks from demand, the adjustment of wages and prices is relatively slow, which makes it take a long time for the economy to return to the state where the actual output is equal to the normal output, thus the market is unbalanced. As for the stickiness of wages and prices, Keynesians explain it from menu cost theory, staggered price adjustment and staggered wage adjustment theory, imperfect competition theory, market coordination theory, labor market theory and credit rationing theory. For example, the menu cost theory thinks that the reason for the slow price adjustment is that the price adjustment has a cost; The theory of price staggered adjustment and wage staggered adjustment holds that the time for economic parties to adjust prices is staggered. The theory of imperfect competition holds that the imperfect competitive market makes the price insensitive to the change of total demand. Keynesianism explains economic fluctuation with short-term aggregate supply curve on the basis of price and wage stickiness. When the overall price level rises, manufacturers' production can be adjusted as soon as possible, but due to the effect of wage stickiness, the labor supply determined by the expected price cannot be adjusted quickly, and the Keynesian short-term total supply curve inclines to the upper right. Corresponding to a total supply curve inclined to the upper right, the change of urgent demand not only affects the overall price level, but also affects the actual output. Based on the above analysis, Keynesianism not only believes that the policy of aggregate demand management is still effective in the short term, but also advocates that the government should play a greater role in coordinating market failures in order to quickly return to the equilibrium state of full employment after the economy is hit by aggregate demand. Comparing classical macroeconomics with Keynesianism, the differences between the two schools in theory and policy can be described as the continuation of liberalism and government interventionism. Specifically, from the hypothetical conditions, market clearing and non-market clearing became the initial watershed. Classicism emphasizes the role of market mechanism, while Keynesianism attaches importance to the incomplete aspects of the market. The policy conclusion drawn from this is just the opposite. The difference between classicism and Kane's thought.

Since the 20th century, schools of western macroeconomics have sprung up like mushrooms after rain, and their debates mainly focus on the following issues: First, can the economy automatically achieve full employment and a balance between supply and demand? Or can all kinds of markets be cleared automatically? Second, can prices, wages and interest rates be adjusted flexibly? Third, is the role of money in the economic system neutral? Is the classical dichotomy effective? Fourth, should government intervention be abolished and laissez-faire be practiced in economic activities? Fifth, does macroeconomics mainly focus on long-term economic growth or short-term economic fluctuations? The debate between classicism and Keynesianism did not leave these focal issues.

1, classical macroeconomics tries to return to the position of classical economics, claiming that the market with free competition has its own internal mechanism, that prices and wages can be flexibly adjusted, that money is non-neutral (as a nominal variable, money can only affect nominal variables such as prices, but has no effect on real variables such as output and employment), that supply and demand can be automatically balanced, that the market can be spontaneously adjusted to an ideal equilibrium state, and that the government should not interfere in the economy and implement a laissez-faire economic policy. Neoclassicism mainly defends their classical economic theory from the following aspects and puts forward their policy propositions.

1) They tried to demonstrate macroeconomic problems with microeconomic theory. They proceed from the fact that people are economic people and pursue the maximization of interests. From the perspective of microeconomics, they observe the changes of wages and prices of individuals and enterprises, and firmly believe that market wages and prices can be adjusted spontaneously, thus adjusting demand until the market is completely clear. Free competition is the magic weapon to balance supply and demand, and the market will eventually reach an ideal state, maintain stable economic development, and let the whole society enjoy the greatest welfare. As for oversupply, insufficient demand or excess demand, insufficient supply is only an accidental phenomenon.

2) They use econometric methods to explain people's rational expectations. Lucas is the representative. He believes that every economic man is rational, and human rationality can be divided into strong rationality and weak rationality. Strong rationality refers to people like economists, who will give a rational judgment on economic development according to the information they have obtained and the economic knowledge they have mastered. For example, when the market price (P) exceeds his expected price (Pe), that is, (P-PE >; 0), he will judge whether the price increase is due to the increase in market demand or the increase in currency circulation in the market, so as to arrange his own production and operation reasonably. Although people with weak rationality can't get complete information and don't have professional knowledge of economics, people can gain experience and lessons from many games because the economy is developing and the games among enterprises, governments and markets are repetitive. In the long run, people's expectations for economic exhibitions tend to be correct.

Simplified neoclassical macroeconomic model (Lucas supply function);

yts=yn+γ(pt-pte)，γ& gt； 0

The significance of this function is that if the price level is equal to people's expectation (pt =pte), the total supply is equal to the natural rate output level yn (the natural rate output level is the maximum output under the condition of full employment). Otherwise, as the actual price level exceeds the expected price level, the output will increase above the natural rate level. That is to say, when people can accurately predict the price level, the total output (yts) is equal to the natural output rate level (yn). Therefore, the government's monetary policy to stimulate the economy will only lead to rising prices, but will not increase output and employment. If the government's policy is to be effective, it must be taken by surprise or by deception. In a word, the government's policy of stimulating the economy will undermine the stability of the economy itself and adversely affect the development of the whole economy. Therefore, classicism opposes government intervention in the economy and advocates maintaining a high degree of autonomy in economic activities.

2. In order to maintain its dominant position, Keynesianism has also been revised.

1) Keynesianism believes that wages and prices are rigid, so that the relationship between supply and demand cannot be properly adjusted and the market cannot be in an "ideal" equilibrium state. The key problem is the rigidity of wages and prices, which does not conform to the principles of microeconomics. So Keynesianism was revised. They believe that the market is not completely competitive, and enterprises are not completely price recipients. Therefore, Keynesianism believes that in an imperfect competitive market, wages and prices are sticky, if not rigid. The reason why wages are sticky is because wages are signed. Generally, contracts have a contract period, and wages cannot be changed at will during the contract period. Although manufacturers can reduce wages, they are also in danger of losing workers. Although workers can demand higher wages or go on strike, stoppages will also affect their income, so wages are not easy to change, at least in the short term. Manufacturers also need to pay for price changes, such as reprinting price lists, changing contracts, and notifying business partners and their customers. , will produce the so-called "menu cost", so the price will not change at will in the short term. So wages and prices are sticky, so the market is not always clear, and supply and demand are not always equal.

2) Kane's model adds two assumptions: one is the principle of maximizing the interests of economic parties, and the other is rational expectation.

The reality of today's capitalist society is that social productive forces are highly developed, supply often exceeds demand, and economic crises are often caused by insufficient effective demand, which will shrink production, make workers unemployed and lead to economic recession. Therefore, the conclusion of Kane's doctrine is that when the supply of the market exceeds the demand, the market cannot automatically adjust to the clearing state because of the stickiness of wages and prices, and it needs to stimulate the demand to make the market tend to balance. At the same time, Keynesianism also takes into account the automatic adjustment mechanism and rational expectation in the economy. They believe that when external shocks come, they must be offset by economic policies, so as to keep the total demand at the level of full employment. In short, Keynesianism still insists on government intervention in the economy.