Milton Friedman and Monetarism
Monetarism is closely associated with economist Milton Friedman, who argued, based on the quantity theory of money, that the government should keep the money supply fairly steady, expanding it slightly each year to allow for the natural growth of the economy.
What is the classical view of economic management?
Classical economics emphasises
the fact that free markets lead to an efficient outcome and are self-regulating
. … The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation.
Which school of thought believes that expansionary monetary policy is effective in fighting recessions I classical macroeconomics II Great Moderation consensus?
Keynesian theory
argued that monetary policy could be very effective during a depression. … The Great Moderation consensus includes the belief that expansionary monetary policy is effective in fighting recessions.
What are the influences of Keynesian perspective on monetary policy?
Keynes's theory of monetary policy is composed of three concepts—namely,
the investment multiplier, the marginal efficiency of capital and the interest rate
. By analyzing how these three concepts interact in the short period, Keynes explains why he is opposed to countercyclical monetary policies.
Which mode or time period of economic thought helped spread the business cycle beyond Britain from the late 1800s to the early 1900s?
History.
Mercantilism
became the dominant school of economic thought in Europe throughout the late Renaissance and the early-modern period (from the 15th to the 18th centuries).
What is the most important ingredient in long run economic growth?
Long-run economic growth depends almost entirely on one ingredient:
rising productivity
. However, a number of factors affect the growth of productivity. Let's look first at why productivity is the key ingredient.
Which of the following is a monetarist solution for a recession?
Which of the following is a monetarist solution for a recession?
steady and predictable growth of the money supply
. Monetarists believe that increased government expenditure: Crowds out consumption and investment when financed by bonds.
What is the focus of classical economy?
Classical economics refers to the school of thought of economics that originated in the late 18th and early 19th centuries, especially in Britain. It focused on
economic growth and economic freedom, advocating laissez-faire ideas and belief in free competition
.
What is the basis of classical economic theory?
The fundamental principle of the classical theory is that
the economy is self‐regulating
. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economy's resources are fully employed.
What is new classical theory?
New classical macroeconomics, sometimes simply called new classical economics, is
a school of thought in macroeconomics that builds its analysis entirely on a neoclassical framework
. Specifically, it emphasizes the importance of rigorous foundations based on microeconomics, especially rational expectations.
How does monetary policy affect real GDP?
Expansionary monetary policy
increases the money supply in an economy
. The increase in the money supply is mirrored by an equal increase in nominal output, or Gross Domestic Product (GDP). … This would lead to a higher prices and more potential real output.
Did Keynes believe in monetary policy?
Keynesian view of monetary policy.
Keynesians do
believe in an indirect link between the money supply and real GDP
. They believe that expansionary monetary policy increases the supply of loanable funds available through the banking system, causing interest rates to fall.
What is the long run impact of monetary policy?
Supported by these three pillars, we show that, surprisingly, monetary policy affects
TFP, capital accumulation, and the productive capacity of the economy for
a very long time. In response to an exogenous monetary shock, output declines and even twelve years out it has not returned to its pre-shock trend.
What are the 3 major theories of economics?
Can you discuss the three major economic theories (
laissez-faire, Keynesian economics, monetarism
) that have influenced the economic policy-making process in the US?
Was Keynes a Marxist?
Keynes had never taken Marxism seriously, and for the most part he never would. But despite the rhetoric, he could treat individual Marxists with respect. …
He was also a Marxist
and, after 1922, a member of the Communist Party of Great Britain (CPGB).
What were the pillars of mercantilist thought?
The underlying principles of mercantilism included (1)
the belief that the amount of wealth in the world was relatively static
; (2) the belief that a country's wealth could best be judged by the amount of precious metals or bullion it possessed; (3) the need to encourage exports over imports as a means for obtaining a …
