Economics question

GVNDNN

2000 8 C)

Explain, briefly, what is meant by the term "monetarist policy"?

Anybody know, it's different than monetary policy because that's the B question

stainluss

GVNDNN wrote: »

2000 8 C)

Explain, briefly, what is meant by the term "monetarist policy"?

Anybody know, it's different than monetary policy because that's the B question

You can get the marking scheme on the SEC website, probably best to learn off whatever explanation is there.

Otherwise, check out this
http://en.wikipedia.org/wiki/Monetarism#What_is_monetarism.3F looks a bit confusing

caroline1111

That the economy should be controlled by the government the through use of monetary rather than fiscal policy? I dunno.

lc2010

Not 100% sure but i'd say if you looked up the section on history of economic thought in your book and looked up the monetarist economists it should explain it.

Behind you Joey

No I'm pretty sure it's just; when the government concentrates on using credit creation, interest rates and money supply to control the market.

Euro_Kraut

Hi Op,

MA in Econ here. You seemed to be confused on the difference between monetary policy and monetarist policy rather than seeking the definition of either. Let me have a bash at making it a little clearer.

Basically:

Monetary policy: This is the policy a Government or Central Bank has in relation to interest rates.

Monetarist policy: This is the policy a group of people called Monetarists have. The monetarists favour a Central Bank determining the Interest rates on the basis on the prevailing Inflation rate. The other view is that at times when a economy needs a stimulant, interest rates should be lowered. Monetarists however believe this just causes inflation in the long run. Therefore interest should not be cut to promote economic growth.

The most famous monetarist is Milton Friedman who essentially invented the idea in the 1960s in Chicago. Famous politicians who have embraced this idea include Margret Thatcher and Ronald Regan.



For Extra credit : The European Central Bank is based on the model of the old German Bundesbank. The Bundesbank was considered to be the most successful central bank in Europe in the days before the Euro. The ECB, like the Bundesbank, determine interest rate based purely on the current rate of inflation within the Eurozone. This is the monetarist approach.

Therefore the monetary policy of the ECB, is monetarist.

By contrast the Bank of England (BOE) will set interests rate for the UK with economics growth in mind. Therefore at the moment the Bank of England has set interest rates at 0.5%. This almost the very lowest it can go. The hope is that cheaper loans will help people buy more goods and stimulate the economy. This is not a monetarist approach. Monetarists would be concerned that the BOE will just cause more inflation with this action.


Hope that is of some help. Ask if some thing is not clear enough.:)