Criticism of Monetarism  

Monetarist Policies place great emphasis on controlling the money supply in order to control inflation. It also goes together with strict budgetary management and generally a belief in laissez faire – free market supply side policies.

Criticisms of Monetarism Include:

  1. Growth in the money supply is erratic due to structural change in economy making controlling the money supply meaningless.
  2. Controlling Money supply can lead to recession. For example, in the 1980s, the UK pursued strict Money supply targets but this caused a deep recession. This was because monetary policy was too tight trying to meet artificial money supply targets.
  3. Why not target inflation directly? If you want to control inflation, it makes more sense to target inflation directly rather than through the intermediary of the money supply.
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