Economists who accept the quantity theory of money are usually called monetarists. Monetarists believe that there is a direct proportional relationship between prices and the amount of money in circulation, since the value of money is determined by this amount. The larger the money supply, the less money is worth, and the higher the prices of goods and services.
The implications for this theory on policy are clear: monetarists think that it is generally a bad idea to try to promote economic growth by increasing the money supply. Doing so, they argue, will only lead to inflation, since prices will rise proportional to the amount of money in circulation.
Most monetarists generally believe in maintaining a stable money supply, pursuing policies that do not...
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