What are the core principles of monetarism? How do they justify their criticism of the Fed?

Question

How would monetarists improve monetary policy?

Answer 1

Monetarists don't believe that the Fed should intervene. They believe that we should let the market correct itself. In their view any adjustments to monetary policy that the Fed makes will either be neutral or worsen the situation. For example if the Fed starts selling more bonds it will discourage private investment in companies, if the Fed lowers the discount rate it doesn't necessarily mean that the banks will issue more loans either. So basically monetarists say that there should be no intervention in a free market system :)

Answer 2

Monetarism is a set of views concerning the determination of national income and monetary economics. It focuses on the supply and demand for money as the primary means by which economic activity is regulated. Monetary theory focuses on money supply and on inflation as an effect of the supply of money being larger than the demand for money.

Monetarism today is mainly associated with the work of Milton Friedman, who was among the generation of liberal economists to accept Keynesian economics and then critique it on its own terms. Friedman and Anna Schwartz wrote an influential book, Monetary History of the United States 1867-1960, and argued that "inflation is always and everywhere a monetary phenomenon." Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand. The monetarist argument that the demand for money is a stable function gained considerable support during the late 1960s and 1970s from the work of David Laidler. While most monetarists believe that government action is at the root of inflation, very few advocate a return to the gold standard. Friedman, for example, viewed the gold standard as highly impractical. The former head of the United States Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation.

Critics of monetarism include both neo-Keynesians who argue that demand for money is intrinsic to supply, and some conservative economists who argue that demand for money cannot be predicted. Supply-sider Jude Wanniski declared monetarism a failure because it assumed that the velocity of money is roughly constant [1]. Joseph Stiglitz has argued that the relationship between inflation and money supply growth is weak for ordinary inflation, as opposed to hyperinflation (meaning perhaps more than 10% year-over-year) which is almost universally regarded as an effect of government spending at a time when output growth can not absorb it (See inflation by government spending). In an interview with the Financial Times from June 6, 2003, Milton Friedman even seemed to repudiate the monetary policy of monetarism and was quoted as saying "The use of quantity of money as a target has not been a success," ... "I'm not sure I would as of today push it as hard as I once did."

Answer 3

Moneterists follow the ideas of Milton Freedman who died this year. Famous followers of his ideas were Margaret Thatcher and Ronald Reagan. It is the simplest economic philosophy, basically minimise borrowing and taxation, encourage investment and enterprise. Provide only the minimum necessary benefits infrastructure and rely on generated wealth. If some industries are unprofitable regardless of whether they provide social benefit (as in postage and healthcare). Don't protect home industries (such as shipbuilding in England). Allow non profitable companies to close. Categorise non-profit making indistries as lame ducks and allow them to be replaced by newer more profitable industries and encourage flexibility in labour markets to adapt to changes.

They will criticise the Fed if it leans towards subsidy and social benefits paid from by higher taxation. They will praise it when it backs winners and allows losers to go to the wall.

Answer 4

ok since other ppl decided 2 do ur assignment 4 u, the first answer is the 1 that u will want 2 use

dont read past that