Monetarists are an old school brand of economists that believe that monetary policy should emphasize the money supply. Monetarists consider the proven formula of MV=PQ (where M is M2 money supply, V is the number of times each dollar is spent on goods and services, P is the CPI and Q is real GDP) as telling of their fundamental principle. They believe that both V and Q are essentially fixed; changes in V (aka how we use our money) are slow and predictable and that in the long run real GDP will also grow at steady pace. With these assumptions, it becomes clear how crucial the money supply is on price level. Changes in M will have a direct impact on P. This interpretation is called the quantity theory of money.
According to monetarists, in the long run, if money supply growth is faster that the growth in potential real GDP (with velocity remaining stagnant) then we will experience inflation. Prices are inflexible in the short term, meaning that it takes time for prices to change......

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Title: Monetarists- Old School Econ
Approximate Word Count: 585
Approximate Pages: 3 (250 words per double-spaced page)

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