Monetarism

In the 1960s, Milton Friedman promoted a macroeconomic policy called “Monetarism”.

Monetarism focuses on the supply of money in an economy as the primary means by which the rate of inflation is determined. It stipulates that the supply of money does affect the amount of spending in an economy. Thus, where the money supply expands, people would not simply wish to hold the extra money. These excess funds would be spent and hence aggregate demand would rise. Similarly, if the money supply were reduced, people would want to replenish their holdings of money by reducing their spending.

Excessive expansion of the money supply is inherently inflationary and monetary authorities should therefore focus on maintaining price stability.

Source: http://en.wikipedia.org/wiki/Milton_Friedman

Gerbrand Vidts