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Monetarist Theory
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Monetarist Theory
When? Who? Why?
- This theory was developed in the 1960's - 1970's.
- The man who developed it was named Milton Friedman.
- This was developed because they wanted to find out the reasons behind inflation and why prices rise to such high rates.
- Monetarist do not believe that Fiscal Policy is needed to fix the economic crisis with money.
Definition
How do we provide a rising standard of living for ourselves and for future generation?
The Monetarist Theory is the overlook of the money supply when there are significant changes, which in belief has an effect on the growth and behavior of the business cycle.
The Monetary equation is M x V= P x Q
M= Money supply
V= Money Velocity
P= Price Level
Q= Real income
By borrowing money, profits and cash deposits can expand the money supply. Then it can turn into a cumulative process, causing inflation to increase but the monetary system stays put.
How do we ensure stable prices and full employment of our resources?
Cites
Say's law- States supplies in markets will be sold so markets will always be clear. Money is neutral and can not impact the real factors in an economy like output.
http://interzone.com/~cheung/SUM.dir/econthym1.html
http://www.econweb.com/MacroWelcome/monetarism/notes.html
http://www.investopedia.com/terms/m/monetaristtheory.asp
http://en.wikipedia.org/wiki/Milton_Friedman
http://en.wikipedia.org/wiki/History_of_macroeconomic_thought
Milton Friedman
How do we decide what to produce with our limited resources?
- Friedman was born on July 23, 1912.
- He was an economic professor at the University of Chicago for more than 30 years.
- He is known for many awards, one being the Nobel Memorial Prize in Economic Sciences.
- He was also the leader of the Chicago school of economics.
- While he was studying the money supply, he theorized that there was a natural rate of unemployment.
- He died only a few years back, on November 16, 2006.
The government would charge higher interest to balance the input and out put of money.