monetarism

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Related to Monetarist view: Monetarist Theory

monetarism,

economic theory that monetary policy, or control of the money supply, is the primary if not sole determinant of a nation's economy. Monetarists believe that management of the money supply to produce credit ease or restraint is the chief factor influencing inflationinflation,
in economics, persistent and relatively large increase in the general price level of goods and services. Its opposite is deflation, a process of generally declining prices. The U.S.
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 or deflation, recession (see depressiondepression,
in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment.
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) or growth; they dismiss fiscal policy (government spending and taxation) as ineffective in regulating economic performance. Milton FriedmanFriedman, Milton
, 1912–2006, American economist, b. New York City, Ph.D. Columbia, 1946. Friedman was influential in helping to revive the monetarist school of economic thought (see monetarism).
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 was the leading modern proponent for monetarism.

monetarism

a school of thought in economics and in politics that sees control of the money supply as the key to the management of the economy Monetarists emphasize the need to match the supply of money (including credit) to the capacity of the economy to produce goods and services, if INFLATION is to be controlled and stop-go economic growth avoided. As well as having been a fashionable but controversial theory in academic ECONOMICS (compare KEYNESIAN ECONOMICS), monetarism has also been widely employed in the 1980s by Western governments. It provides a rationale for control of the economy through control of the money supply, including the control of rates of interest, and has also been used as justification for control of state expenditures, and thus the state borrowing which creates credit. The adoption of monetarism was an outcome of the seeming failure of Keynesian economics to prevent high inflation and high unemployment, a loss of international competitiveness and a squeeze on profits. All of these were suggested to be the result of an OVERLOAD ON THE STATE and the escalation of state expenditures.

The issues to which monetarism relates are not only a matter of monetary relations and fiscal policy, or the interests of nation states. Rather, as suggested long ago by MARX, such issues also involve the complex competing interests of multiple groups and classes, internationally as well as within nations. See also HABERMAS, THATCHERISM.

monetarism

1. the theory that inflation is caused by an excess quantity of money in an economy
2. an economic policy based on this theory and on a belief in the efficiency of free market forces, that gives priority to achieving price stability by monetary control, balanced budgets, etc., and maintains that unemployment results from excessive real wage rates and cannot be controlled by Keynesian demand management
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References in periodicals archive ?
The monetarist view would suggest a much different picture about the likely effects of moving to a common central bank than has been painted by the previous literature.
This paper recommends that Keynesian and monetarist views about the transmission mechanism and the homeostatic mechanism are fundamentally different and provide bases for discriminatory tests.
Keynesians implicitly accepted the monetarist view of the role of money illusion in empowering monetary policy.
In addition to the restrictions in Equations (3) and (4), the monetarist view on the acceleration of inflation may be expressed in a more formal way.
Thus, the monetarist view about the quantity theory is that money does matter and that the quantity of money M influences economic activities and through which, real macro variables such as consumption, investment, and real and nominal income.
expositions of the monetarist view of the inflation-unemployment
32] The original estimates appeared to support the monetarist view of the world: an increase in the money supply leads first to an immediate increase in nominal spending and real output, and only after prices adjust to the higher demand pressure does the price level rise to stifle the increase in real output.
Most central banks today share the monetarist view that inflation is due largely to excessive money growth.
Sections 3 and 4, respectively, contrast Keynesian and monetarist views on the Phillips curve and the resulting disagreement over the desirability of an activist monetary policy.