a. On the basis of this summary, state whether monetary policy during the rele- vant time period covered by the report has been expansionary or contractionary. b. Summarize the reasons why the Bank believes such a policy was needed. 3. Access Statistics Canada’s E-Stat site (at Estat/licence.htm ). a. Using the information found in “Business Enterprises,” generate a two-dimen- sional graph showing the daily bank rate in Canada since 1997. b. What does your graph in part a say about shifts in Canadian monetary policy in the years since 1997? 4. Accessing the Bank of Canada’s website (at ), retrieve the Bank of Canada’s own definition of its core CPI and the eight specific elements that it excludes from this concept. english/Estat/licence.htm INTERNET APPLICATION QUESTIONS
371 CHAPTER 13 Monetary Policy ADVANCING ECONOMIC THOUGHT MILTON FRIEDMAN © Bettmann/Corbis/Magma MONEY MATTERS Milton Friedman and Monetarism FRIEDMAN AND HIS INFLUENCE One of the most influential figures in the discipline of economics during recent decades has been the American economist Milton Friedman (1912–2006). He was both a student and a long-time professor at the University of Chicago, an institution where the ideas of the neoclassical economists lived on during the Keynesian revolution of the 1930s and 1940s. Friedman is perhaps most famous as a promoter of laissez-faire capitalism in the tradition of Adam Smith. He popularized his views in his books Capitalism and Freedom (1962) and Free to Choose (1980), as well as in numerous magazine articles and TV appearances. Friedman’s pro-market outlook stemmed from his belief that wages and prices in private markets are fairly close to their most efficient, perfectly competitive values, while such spillover effects as pollution can best be dealt with through private lobbying and nego- tiation, rather than through government intervention. Since governments are inefficient by their very nature, said Friedman, and because they hinder individual freedom, their intervention in private markets should be minimized. Friedman suggested replacing income-support programs, such as welfare and Employment Insurance, with a single, guaranteed annual income system. He also argued that many functions currently performed by governments could be performed more efficiently by the private sector, if businesses are chosen to fulfill each specified task at the lowest possible cost. THE ROLE OF MONEY Friedman contributed to various aspects of economics, but his most wide-ranging work was associated with the economic perspective known as “monetarism,” which empha- sizes the influence of money in the economy. Monetarism is an extension of theories that dominated macroeconomics before John Maynard Keynes. Like neoclassical economists such as William Stanley Jevons, monetar- ists believe that the economy is able to adjust to shocks without government interven- tion. While admitting that the economy can be temporarily set off course, monetarists argue that misguided government intervention usually just makes economic fluctua- tions worse. Because they stress the importance of money, monetarists blame unwise use of monetary policies in particular.
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