Question

The basic tenets of ‘Monetarism’ are

• A. acceptance of the ‘quantity theory’ approach to macroeconomic analysis
• B. a strict rule-based monetary policy
• C. a monetary approach to the balance-of-payments and exchange-rate theory
• D. an active stabilization policy through expansionary monetary/fiscal policies

Hint:

Monetarism emphasizes the role of money supply in the economy and advocates for a predictable, rule-based monetary policy to control inflation.

Answer 1

The Correct Option is A, B, C

Step 1: Understand the key principles of Monetarism.
Monetarism, a school of thought led by Milton Friedman, emphasizes the role of money supply in determining economic outcomes, especially inflation. Key principles include the acceptance of the quantity theory of money, a focus on controlling inflation by regulating money supply, and a rule-based approach to monetary policy rather than discretionary fiscal policy.
Step 2: Evaluate the options.
- (A) acceptance of the ‘quantity theory’ approach to macroeconomic analysis: This is correct. Monetarism accepts the quantity theory of money, which links the money supply directly to inflation and economic output.
- (B) a strict rule-based monetary policy: This is correct. Monetarists advocate for a fixed and predictable growth rate of the money supply to avoid inflationary or deflationary pressures.
- (C) a monetary approach to the balance-of-payments and exchange-rate theory: This is correct. Monetarists believe that exchange rates and balance-of-payments are influenced primarily by the money supply and demand for money.
- (D) an active stabilization policy through expansionary monetary/fiscal policies: This is incorrect. Monetarism opposes the use of active fiscal and monetary policies for stabilization, advocating for a more passive role of government intervention.
Step 3: Conclusion.
The correct answer is (A), (B), and (C). Final Answer: (A), (B), (C)