The economist Milton Friedman was regarded as one of the major thinkers of the monetarist school of economic thought - Leaving Cert Economics - Question c - 2010
Question c
The economist Milton Friedman was regarded as one of the major thinkers of the monetarist school of economic thought.
Outline four features of 'Monetarism'.
Worked Solution & Example Answer:The economist Milton Friedman was regarded as one of the major thinkers of the monetarist school of economic thought - Leaving Cert Economics - Question c - 2010
Step 1
Monetary policy
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Monetary policy should be the primary instrument used by the government to manage the economy, rather than fiscal policy. Monetarists argue that excessive government expenditure can result in higher prices and not necessarily lead to increased output and employment, as suggested by Keynes.
Step 2
Control of money supply
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Monetarists advocate for strict control of the money supply to manage inflation. This involves limiting credit availability and implementing high-interest rates to manage consumer borrowing, thus helping to stabilize prices.
Step 3
Reduction in inflation
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A focus on reducing inflation can enhance competitiveness for exports, making them relatively cheaper. As exports increase, it can lead to job creation in the long run. Companies are encouraged to keep wage increases minimal to avoid potential cost-push inflation.
Step 4
Laissez faire principles
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Monetarists favor a return to laissez faire principles, advocating for minimal state intervention. This includes the deregulation of markets and the privatization of state bodies, allowing market forces to operate freely.
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