Definition
A Monetarist is an economist who believes that variations in the money supply are the main determinants of the economic cycle. Monetarists argue that controlling the growth of money in circulation is the primary means to regulate economic stability and growth. This school of thought suggests that proactive regulation of the money supply can mitigate economic fluctuations better than fiscal policy measures, such as changes in government spending and taxation.
Examples
- Milton Friedman: One of the most well-known monetarists, Friedman argued that fluctuations in the money supply are the primary drivers of economic conditions and inflation. His work emphasized the importance of managing the money supply to avoid severe economic fluctuations.
- Bank of England’s Target of Money Supply: Between 1979 and 1985, the Bank of England targeted money supply growth as part of its monetary policy strategy.
- Federal Reserve’s Policies: Throughout different periods, the Federal Reserve has implemented policies aimed at controlling the money supply to achieve economic stability.
Frequently Asked Questions
What is the key belief of monetarist economists?
Monetarist economists believe that the money supply is the primary driver of economic activity and that managing its growth is crucial for controlling inflation and maintaining economic stability.
How does monetarism differ from Keynesian economics?
While monetarism emphasizes the control of the money supply, Keynesian economics focuses on government spending and fiscal policy as primary tools to manage the economy. Monetarists argue for steady money supply growth, whereas Keynesians advocate for active fiscal policy management.
What policies do monetarists advocate?
Monetarists typically advocate for policies that aim for steady and predictable growth in the money supply. They argue against frequent and large-scale government interventions in the economy.
Can monetarism prevent economic recessions?
Monetarists believe that by maintaining steady growth in the money supply, the economy can be stabilized, thus preventing severe recessions. However, the effectiveness of this approach has been the subject of debate among economists.
How did Milton Friedman influence monetarism?
Milton Friedman significantly influenced monetarism through his research and advocacy for the importance of the money supply in determining economic outcomes. His work reshaped many central banks’ approaches to monetary policy.
Related Terms
Money Supply
The total amount of monetary assets available in an economy at a specific time. This includes cash, deposits, and other liquid instruments.
Keynesian Economics
An economic theory stating that government intervention through fiscal and monetary policy is necessary to manage the economic cycle and ensure full employment.
Inflation
The rate at which the general level of prices for goods and services is rising, and subsequently, eroding purchasing power.
Fiscal Policy
Government policy that uses taxation and government spending to influence the economy.
Online References
Suggested Books for Further Studies
- “A Monetary History of the United States, 1867-1960” by Milton Friedman and Anna Schwartz
- “Free to Choose: A Personal Statement” by Milton Friedman and Rose Friedman
- “Money Mischief: Episodes in Monetary History” by Milton Friedman
Fundamentals of Monetarism: Economics Basics Quiz
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