SOWK 3110 Lecture Notes - Lecture 15: Monetarism, Money Supply
29 Apr 2019
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Document Summary
The monetarists: the monetarists advocate the use of monetary policy to stimulate the economy. Monetarist theory asserts that managing the money supply and the cost and availability of credit or interest rates (monetary policy), rather than focusing on government expenditure (fiscal policy), is the key to managing the economy. According to monetarism, the government should not stimulate the economy through government spending, but should maintain a steady money supply. Market forces will then adjust inflation, unemployment, and production automatically and efficiently. If money is readily available because interest rates are low, people can afford to borrow and spend. But production must keep pace, so that there will be enough goods and services to meet the demand created by this borrowing and spending. In the face of excessive demand, producers and suppliers have incentives to raise their prices. As time goes by, prices spiral upward, leading to uncontrolled inflation, during which dollars lose their value.
