• Monetarism is a macroeconomic theory that states that governments can promote economic stability by controlling the growth rate of the money supply.

  • Central to monetarism is the quantity theory of money, which states that the money supply (M) multiplied by the annual spending rate (V) is equal to the nominal spending (P * Q) in the economy.
  • Monetarism is closely related to the economist Milton Friedman, who argued that the government should keep the money supply fairly stable, increasing it slightly every year, mainly to ensure the natural growth of the economy.
  • Monetarism is a branch of Keynesian economics that emphasizes the use of monetary policy rather than fiscal policy to manage aggregate demand, unlike most Keynesians.
  • Although most modern economists reject the emphasis on the growth of the money supply, which monetarists assumed in the past, some basic principles of the theory have become the basis of non-monetarist analysis.