Monetarism
Monetarism is a school of thought that emphasizes the role of the government in controlling money that is in circulation. The theory carries the belief that variations in the supply of money will have an influence on the national output as well as on the price levels over longer periods. The monetary school of thought believes that the objectives of the monetary policy can best be achieved by targeting the growth rate of the money supply instead of engaging in discretionary fiscal policy (Akram-Lodhi 13).The monetary policy focuses on the effects of money supply and central banking on the macroeconomy, and at the same time, it argues that excessive expansion of money supply serves inflation purposes and it also argues on the importance of maintaining the stability of prices in the market. The monetarist model is based on the base of stable micro foundations for institutions that facilitate the process of exchange.
Monetarism encompasses a body of research that focuses on the monetary theory as well as the monetary policy as well as significant fundamental issues such as banking and financial mediation. Monetarism will also study the role of currency in the exchange process as well as the role of related financial institutions (Akram-Lodhi 18).Financial intermediation is a significant aspect, and this will be concerned with the diversification as well as the transformation of assets. The financial mediation theory is useful because it assists in creating an understanding of the potential of instability in the banking and financial system. Milton Friedman was the brain begins the monetarism theory, and he managed to develop the theory at a global level. Friedman focuses on the role of money in economic processes and especially the importance of balance in the money market. Changes in the money stock have been raised in the motor of the economic processes, and this is because of the applied monetary policy. Monetarism was developed as a direct reaction to Keynesianism, and it was concerned with the long-term underestimation of money as well as monetary factors.