HELP! Someone who knows Austrian Economics, please help me!Submitted by Chuckduck764 on Mon, 09/30/2013 - 22:07
I'm in a college macroeconomic theory class.....my professor tried to show me and the class today that the natural effects of market processes are exactly the same as the Fed's actions, and that the Fed raising the money supply increases savings and fixes recessions.
I hold the traditional Austrian viewpoint that an increase in the money supply by the Fed. artificially lowers interest rates, thereby causing firms to "mal"-invest, only to realize that no one has saved any money to purchase the products that result from their investment.
My professor says that during a recession, the increase in the money supply by the Fed lowers interest rates (obviously), therefore stimulating investment....I agree with him on that much.....but he goes on to say that this investment causes firms to increase total output, meaning that income rises (since output=income), and since income rises, individuals (workers, in this case) have more money to both save and consume. Therefore, according to my professor, expansionary monetary policy can fix recessions.....but this runs contrary to my Austrian views.
Is there anyone out there who can help me disprove my professor?