Monetarism

MONETARISM

Andrei Sabadyr

National technical university of Ukraine “KPI”

 

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. A focus of the subject is how economic agents behave or interact and how economies work. Consistent with this, on the scale it is divided into microeconomics and macroeconomics. Microeconomics examines the behavior of basic elements in the economy, including individual agents (such as households and firms or as buyers and sellers) and markets, and their interactions. Macroeconomics analyzes the entire economy and issues affecting it, including unemployment, inflation, economic growth, and monetary and fiscal policy.

Monetarism — macroeconomic theory, according to which the amount of money in circulation is a determining factor in the development of the economy. Monetarism is one of the main areas of neoclassical economic thought. Monetarism emerged in the 1950s as a series of empirical studies in the field of monetary circulation. The founder of monetarism is Milton Friedman, who later won a Nobel Prize in economics in 1976.

The main provisions:

- the regulatory role of the state in the economy should be limited to the control of the money circulation;

- the market economy is a self-regulating system. Monetarists believe that the market economy due to internal developments tends to stability, imbalances and other negative manifestations associated with excessive presence of the state in the economy;

- the number of state regulators is reduced to a minimum. Eliminate or reduce the role of tax, budget management.

- money supply affects the amount of spending by consumers, businesses. The increase in the money supply leads to an increase in production, and after full capacity — to rising prices and inflation;

- inflation should be suppressed by any means, including by reducing social programs;

- as the main regulators, affecting the economic life, are «money pulses» — regular monetary issue. Monetarists point to a relationship between the change in the quantity of money and the cyclical development of the economy. This idea was substantiated and published in 1963 in a book of American economists Milton Friedman and Anna Schwartz, «A Monetary History of the United States, 1867-1960″. Based on the analysis of the evidence here, it was concluded that the rate of growth of the money supply depends on the subsequent onset of a phase of the business cycle. In particular, the lack of money is the main cause of depression. On this basis, the monetarists believe that the state should provide a constant currency issue, the value of which will correspond to the rate of growth of the social product.

- exclusion of short-term monetary policy. Since the change in the money supply affects the economy immediately, but with some delay (lag), short-term methods of economic regulation, proposed by Keynes, should be replaced by a long-term policy, designed for long lasting, permanent effect on the economy.

Thus, according to the views of monetarists, money is the main area, which determines the movement and the development of production. The demand for money has a constant tendency to increase (as determined, in particular, the propensity to save), and to ensure consistency between money demand and supply, it is necessary to follow a policy to gradually increase specific rate of money in circulation. Government regulation should be limited to the control of the circulation of money.

Reference:

  1. http://en.wikipedia.org/wiki/Monetarism
  2. http://www.britannica.com/EBchecked/topic/389146/monetarism

 

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