ABSTRACT
In preparation for the monetarist version of supply-side economics, the orthodox quantity theory of money will be briefly outlined and compared with prevailing demand-side theories of our time, namely, the Keynesian theory of output and employment and Milton Friedman’s variation on the same theme. Real output and employment depend, in Keynesian theory, on the propensity of individuals to spend a certain proportion of their income on goods and services (consumption) and on the willingness of businessmen to invest in new plant and equipment (investment). Investment, which is the key variable in Keynesian economics, is also affected by the level of interest rates. A fall in interest rates will make formerly unprofitable or marginal investment projects profitable. In Post Keynesian theory, at any rate, inflation can occur regardless of the rate of unemployment.
