[3] In the neoclassical school of economics, the classical dichotomy dictates that real and nominal values in the economy can be analysed distinctly.
Post-Keynesians reject the classic dichotomy as well, for different reasons, emphasizing the role of banks in creating money, as in monetary circuit theory.
Mainstream economists often see financial markets as a means of equilibrating savings and investments, intertemporally allocated towards their best usage anchored by fundamentals within the economy.
[7] Irving Fischer developed the theory of debt deflation during the Great Depression to explain the linkages between the financial sector and the real economy.
Pessimism and loss of confidence occur, leading to further hoarding and slower circulation of currency causing complicated disturbances in the interest rate.
Fischer's remedy for when this sequence of events occur is to reflate prices back to its initial level, preventing that "vicious spiral" of debt deflation.
Keynesian economics is concerned with ways of shaping investors' liquidity preference through monetary and fiscal policy channels in order to achieve Full Employment.
The monetary authority can encourage more private investment through a reduction in the interest rate, while fiscal policy, a positive trade balance and housing credit expansions can also lead to further growth in the real economy.