Monetarism

Monetarism - Monetarism Monetarism Graduate Macroeconomics...

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Monetarism Monetarism Graduate Macroeconomics I ECON 309 – Cunningham
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2 The Effects of Money Supply The Effects of Money Supply Changes on the Real Economy Changes on the Real Economy Keynesian View Monetarist View IS LM 1 LM 2 IS LM 1 LM 2 ? Y Y r r
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3 The Effects of Fiscal Changes The Effects of Fiscal Changes on the Real Economy on the Real Economy Keynesian View Monetarist View IS 1 LM IS 1 LM ? Y Y r r IS 2 IS 2
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4 Overview Overview Milton Friedman mid-1950s, University of Chicago Neoclassical price theorist Establish career on PIH and the underpinnings of Marshall’s basic supply and demand model Chicago School is distinctly neoclassical, with substantial Austrian influence. To oversimplify: Austrians are neoclassical in spirit, with a stronger appreciation of the roles of uncertainty and institutions. Money and Banking Workshop at Chicago. Friedman is a self-proclaimed quantity theorist and classical liberal. According to Friedman, “Inflation is everywhere and at all times a monetary
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5 What is Monetarism? What is Monetarism? According to David Laidler ( Economic Journal, March 1981, p. 1-2), Monetarism can be characterized by four elements: (I) A ‘quantity theory’ approach to macroeconomic analysis in two distinct senses: (a) that used by Milton Friedman (1956) to describe a theory of the demand for money, and (b) the more traditional sense of a view that fluctuations in the quantity of money are the dominant cause of fluctuations in money income. (II) The analysis of the division of money income fluctuations between the price level and real income in terms of an expectations augmented Phillips curve whose structure rules out an economically significant long-run inverse trade off between the variables. (III) A monetary approach to the balance-of-payments and exchange rate theory. (IV) (a) Antipathy toward activist stabilization policy, either monetary or fiscal, and to wage and price controls, and (b) support for long-run monetary policy “rules” or at least prestated ‘targets’, cast in terms of the behavior of some monetary aggregate rather than of the level of interest rates.
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6 Friedman’s Restatement Friedman’s Restatement of the Quantity Theory of the Quantity Theory Friedman, M. “The Quantity Theory of Money--A Restatement.” In Studies in the Quantity Theory of Money , Milton Friedman, editor. Univ. of Chicago Press (1956). According to Friedman, total income ( Y ) is explained by nominal wealth ( W ) and the returns ( r ) that it generates. Explicitly:
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This note was uploaded on 02/25/2012 for the course CHEM 309 taught by Professor Staff during the Spring '11 term at UConn.

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Monetarism - Monetarism Monetarism Graduate Macroeconomics...

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