Question

In a Mllton Friedman: "The Role of Monetary Policy”

1. What are the two that monetary policy cannot accomplish according to Friedman?
2. What would be his desired monetary policy?
3. What does Friedman have against a policy of maintaining price stability?
4. What, according to Friedman, caused the Great Depression

Answer 1

1. The two things that monetary policy cannot do is

1. It cannot peg interest rates for longer periods of time.
2. It cannot peg unemployment rate for longer periods of time.

2. His desired monetary policy would be a policy which the monetary authority will be able to control easily rather than being difficult and a monetary policy that can avoid sharp changes in the policy.

3. Price stability provides a measurement which makes it difficult to control the monetary policy as it can lead to more emphasis on money markets conditions, interest rates and quantity of money which can lead to a condition that employment should be made a criterion in the monetary policy which may lead to assigning monetary policy a task more than it can carry out.

4. According to Friedman, the Great Depression was caused due to sharp drop in money supply.