What is monetarism in macroeconomics?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Monetarism is a macroeconomic view that arose mainly as a challenge to Keynesianism.  It is most closely associated with the economist Milton Friedman.

Monetarists believe that governments cannot effectively manipulate the economy.  They believe that fiscal policy will simply result in "crowding out" private investment and in higher interest rates.  Instead of government manipulation of the economy through fiscal policy, they call for a steady and predictable expansion of the money supply.  They argue that the government should simply increase the money supply at a given rate (that is known to everyone) each year.  This would allow the private sector to know what was coming in terms of government policy.  If this is done, the economy can remain stable at or near full employment in the long run.

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