Monetary Policy and Macroeconomic Stabilization

Section 4

Representation of Monetarism

Monetarism: the belief that the money supply is the most important factor in macroeconomic performance.

Easy money

Easy money policy: monetary policy that increases the money supply.

Tight money policy: monetary policy that reduces the money supply.

Lag

Inside lag: delay in implementing monetary policy.

Outside lag: the times it takes for monetary policy to have an effect.

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