Criticisms of Monetarism

  • Not all measures of the Money Supply M0, M2 M4 move at the same rate. The money supply growth depends on which measure is used
  •  Evidence in the 1980s showed that the money supply could grow much faster than the price level suggesting the link was not very close.
  •  The Velocity of Circulation V is not stable, but can change due to factors such as increase in the use of credit cards.
  •  The increase in borrowing has led to an increase in M4 as more people can save money in time deposit accounts. More cash machines has meant that there has been an increase in M0
  •  Monetarists say that Income can vary in the short run, but the short run could be a long time and therefore make monetary policy ineffective, Keynesians argue that the LRAS is not necessarily inelastic they argue that the economy can be below full capacity for a long time