| TABLE 1 | SUMMARY OF MONETARY THEORIES |
| | Short Run | Long Run |
| Classical Theory | Monetary policy is ineffective. The economy always self-adjusts. | Economy self-adjusts due to flexible prices. Changes in the money supply lead only to price changes. |
| Keynesian Theory | Fiscal policy is effective, while monetary policy is ineffective in times of deep recession. | Economy adjusts to long-run equilibrium; increased money supply leads to higher prices. |
| Monetarist Theory | Fiscal policy is ineffective because government spending crowds out consumption and investment, while monetary policy is effective. | Economy adjusts to long-run equilibrium; increased money supply leads to higher prices. |