Monetarism



Monetarism

The monetarism theory is the views based on inflation. According to monetarism, inflation depends on the amount or quantity of money the government is printing. This theory or term is close to Milton Freidman, one who quarreled about the quantity theory of money. Freidman views were that government should maintain money supply and keep it fairly firm while expanding it a bit every year in order to increase and contribute towards the natural growth of the economy.

Monetarism concept had its prime days in the year 1980. These were the days when economists, governments and investors were very enthusiastic about new money supply i the market. Later when monetarism was out of demand, the relation between the different processes of money supply and inflation were less clear to many of the researchers and economists. These days it is also seen that central banks of the countries have stopped setting up the monetary aims and have now started adopting some stringent inflation targets and aims (www.investopedia.com).

In difference to Keynes economics, monetarism says that fluctuations in money supply influence the aggregate demand highly. Hence; any efforts made by the government to increase the aggregate demand in an economy by injecting more money in the market will in the long run result in higher prices and thus inflation. Controlling economy through the fiscal police of the state and its tools is totally against and cutting down the government expenditures. Monetarist, believe that the best thing that can happen to an economy is to keep a check on the money supply in an economy. Only those markets are efficient that deal with the unemployment and inflation prevailing in a n economy (www.businessdictionary.com).

Monetarism theory is closely associated with the classical school of thought. It is actually an addition of the classical theory of economics which ...