Business Glossary

economist who believes that the money supply is the key to the ups and downs in the economy. Monetarists such as Milton Friedman think that the money supply has far more impact on the economy's future course than, say, the level of federal spending-a factor on which keynesian economics puts great stress. Monetarists advocate slow but steady growth in the money supply.

economist who believes that control of the money supply is the key to managing the boom and bust cycles in the economy. Monetarists, most notably Milton Friedman and his followers, maintain that recessions are caused by declines in the rate of expansion in the money supply. The monetarist school of economic thought says that setting annual targets for growth in the money supply, say 3%-4% annually, is the best means to achieve stable growth in the economy and control inflation. As an economic theory, though, monetarism has its drawbacks. Critics say monetarism ignores other factors, such as government spending and taxation, and bank credit, which are equally important. According to the monetarist view, the velocity of money is the most important factor influencing economic growth. Velocity is usually defined as the number of times the same dollar is spent in a year; velocity of money is calculated by dividing total sales volume (or Gross Domestic Product output in goods and services) by the money supply in circulation. Finally, there is still no inclusive definition of the money supply itself; consequently, the money supply is observed by the Federal Reserve, but is only one indicator of the effectiveness of monetary policy.

economist who believes that the money supply is the key to the ups and down in the economy. Monetarists such as Milton Friedman think that the money supply has far more impact on the economy's future course than, say, the level of federal spending. Monetarists advocate slow but steady growth in the money supply. Contrast with keynesian economics .