Monetarism and the Economy

1
Monetarism and the Economy

• Chapter 17, Section 3

2
Monetarism

• Theory that the amount of money the Fed places in
  circulation affects the level of activity in the
  economy
• More money means what?
• Less money?

3
Monetarists

• People who support monetarism
• Often linked with Milton Friedman
• Monetarists generally oppose using fiscal policy
  to slow or expand the economy
• Oppose budget deficits believe in balanced
  budgets
• Believe money supply should grow at 3 to 5
  percent every year

4
Milton Friedman

• Leading supporter of monetarism
• He believes the Feds independence gives them too
  much power
• Mistakes they make have such far-reaching effects
  and there is no check and balance system with them

5
Monetary rule

• Monetarists belief that the Fed should allow the
  money supply to grow consistently and not use
  monetary policy to stimulate or slow the economy

6
Criticism of Fiscal Policy

• Monetarists criticize fiscal policy for two
  primary reasons
• Political process of fiscal policy
• Time lags periods between the time fiscal policy
  is enacted and the time it becomes effective

7
17.3 Quiz

• Do you agree with Friedman and the Monetarists?
  Why or why not?