ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The monetarist theory, as popularized by Milton Friedman, asserts that money supply is the primary factor in determining inflation/deflation in an economy. According to the theory, monetary policy is a much more effective tool than the fiscal policy for stimulating the economy or slowing down the rate of inflation.

Detailed explanation-2: -"There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money-too much money chasing the available supply of goods and services.

Detailed explanation-3: -Friedman’s ideas were profoundly influential. Among other things, he argued that free trade, lower taxes on income and capital, and a reduction in the burden of regulation would increase economic growth and improve social well-being.

Detailed explanation-4: -At its most basic The theory is an accounting identity-that is, it must be true. It says that the money supply multiplied by velocity (the rate at which money changes hands) equals nominal expenditures in the economy (the number of goods and services sold multiplied by the average price paid for them).