Business Management

Topics: Economics, Inflation, Money supply Pages: 2 (526 words) Published: April 2, 2013

This essay is about Milton Friedman theory relevant to political economy. He lived (1912-2006) , was the twentieth century’s most outstanding advocate of free markets , at that time Keynes’s theory was dominating and he challenged that approach , In 1976 he won the Nobel Prize in economics for his achievements in the field of consumption analysis, monetary history and theory ,his theory is to bring inflation under control and restrict growth in the money supply ,

Explanation of the theory

His view was that inflation and unemployment moving in same direction in long run, and he believed that people will suffer from inflation only in short time and that’s because people see that their nominal salaries are increasing but general prices are rising as well that’s why they supply more labor and unemployment rate will decrease but after a while spending and labor supply returns to the initial rate and leaves the economy with higher inflation rate.( Edward W. Younkins 2005)

In the 1970s politics and economy faced new problem such as inflation, and Keynes’s idea was unable to solve the new problems and it seemed to be a short run solution. Friedman says that inflation is always and everywhere a monetary phenomenon and explains that constancy in the growth of the money supply is important for controlling inflation and recessions. The quantity of money is controlled by monetary policy( Elmus R. Wicker ).

His solution for inflation difficulty and short-run fluctuation in employment was money supply rule that it was clear and decisive. Restrict growth in the money supply and pay short-term price of increased unemployment as a result of this theory economic activities regain because of constant and predictable environment that stable currency provides and it will produce slow and steady monetary growth, bring inflation under control, and makes economic growth sustainable. (Hague and Harrop 2010)...
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