Do Keynesian economists accept that monetary policy is at lest useful in controlling the rate of inflation?
There is no dispute among economists, of whatever school of thought, that monetary policy is the most useful instrument for central banks to control inflation. The debate is more about how inflation, defined as a general increase in the overall price level, can happpen. There are two schools of thought: (1) the Monetarist view which states that inflation is the direct result of an increase of the money supply according to the quantity theory of money: M*v = P*Q, where M: amount of money in circulation, v: velocity of the money circulating in the economy, P: the general price level, Q: the total output of the economy (GDP). It is easy to see when v and Q is held constant in the short run, the price level will change with any change in the money supply M. (2) the Keynesian view does not completely disagree with the monetarist view, but state that the money supply is not the only cause of inflation and that changes of the money supply affect the price level not directly but through change
