Effect of Money on Output and Prices
Economics Revision Article Series
A school or thought in economics known as monetarism argued that macroeconomic fluctuations are caused by erratic growth in money supply.
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Effect of money on output
An increase in money will lower interest enough to persuade people to hold all the new money.
Lower interest rate increase investment.
Due to the multiplier effect, increase in investment leads to increase in output.
Even though put in the three steps, the actual monetary mechanism is complex in its effects on output and prices.
A school or thought in economics known as monetarism argued that macroeconomic fluctuations are caused by erratic growth in money supply.
Federal Reserve of USA conducted a full-scale monetarist experiment from 1979 to 1982.
It rejected the monetarist approach after 1982.
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