monetarism

Monetarism

A set of views based on the belief that inflation depends on how much money the government prints. It is closely associated with Milton Friedman, who argued, based on the Quantity Theory of Money, that the government should keep the money supply fairly steady, expanding it slightly each year mainly to allow for the natural growth of the economy.

Notes:

Monetarism had it's heyday in the early 1980's, when economists, governments and investors eagerly jumped at every new money supply statistic. In the years that followed, however, monetarism fell out of favor with economists, and the link between different measures of money supply and inflation proved to be less clear than most monetarist theories had suggested. Many central banks today have stopped setting monetary targets and instead have adopted strict inflation targets.

See also: Central Bank, Deflation, Inflation, Keynesian Economics, Monetarist, Monetary Policy, Money Supply

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monetarism

An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, and that a rational policy calls for moderate, steady increases in the money supply.