Answer to Question #309001 in Macroeconomics for Jackey

Question

The monetarist emphasis the inherent stability of the country in the long-run. They also further acknowledge that monetary and fiscal policy could have an impact on the short-run. In the long run, no large-scale government involvement is necessary since the economy is self-stabilising. Explain this statement which is based on six (6) classical roots and indicate which of them apply to the monetarist approach.

Answer 1

Monetarists believe (1) the economy is self-regulating; (2) changes in M and V can affect aggregate demand; and (3) changes in M and V will change P and Real GDP in the short run, but only prices in the long run. Monetarists also believe that changes in velocity are insufficient to offset changes in M, because they believe that velocity is relatively stable and predictable