Definition of Monetarism:
Monetarism is an economic school of thought, which states that the supply of money in an economy is the primary driver of economic growth. As the availability of money in the system increases, aggregate demand for goods and services goes up. An increase in aggregate demand encourages job creation, which reduces the rate of unemployment and stimulates economic growth. However, in the long-term, the increasing demand will eventually be greater than supply, causing a disequilibrium in the markets. The shortage caused by a greater demand than supply will force prices to go up, leading to inflation.
School of economic thought (also called the Chicago School) which proposes that the quantity of money (the money supply) in an economy is a key determinant (1) of economic activity, (2) in creating or curbing inflation, and (3) in managing economic-cycles. In contrast to Keynesian economics, monetarism maintains that changes in money supply greatly influence aggregate demand. And that, any attempt by a government to increase aggregate-demand (by injecting more money in the economy) will, in the long-term if not earlier, will instead result in higher prices. It is against any attempt to control economy through fiscal-policy, and advocates supply-side economics and cutting government-spending. Credited for preventing economic-depressions for the last 60 years, its influence on economic policy-makers is attributed largely to the University of Chicago economists, chiefly the Nobel-laureate professor Milton Friedman (1912-2006).
Monetarism is a macroeconomic concept, which states that governments can foster economic stability by targeting the growth rate of money supply. Essentially, it is a set of views based on the belief that the total amount of money in an economy is the primary determinant of economic growth.
The theory or practice of controlling the supply of money as the chief method of stabilizing the economy.
How to use Monetarism in a sentence?
- Monetarists believe that velocity (V) is constant and changes to money supply (M) is the sole determinant of economic growth, a view that serves as a bone of contention to Keynesians.
- You may want to break things down from a monetarism perspective so that you can figure out how to maximize your profits.
- You need to make sure you fully understand how monetarism works and try to use it to your fullest advantage.
- Central to monetarism is the "Quantity Theory of Money," which states that the money supply (M) multiplied by the rate at which money is spent per year (V) equals the nominal expenditures (P * Q) in the economy.
- The economic theory known as monetarism holds that the money stock exerts an important influence on economic activity and prices.
- The monetarism school of thought was philosophically and analytically understood and its central principles or tenets were expounded upon by the professor.
- Monetarism is a macroeconomic concept that states that governments can foster economic stability by targeting the growth rate of money supply.
Meaning of Monetarism & Monetarism Definition