Milton Friedman - History of Economic Thought - Lecture Slides, Slides of Economics

Download Milton Friedman - History of Economic Thought - Lecture Slides and more Slides Economics in PDF only on Docsity! Milton Friedman docsity.com Milton Friedman (1912-2006) • A Monetary History of the United States (1963), with Anna J. Schwartz • A theory of the consumption function (1957) • Selected Bibliography docsity.com Monetary policy • But there are lags that make monetary policy ineffective. – Observation lag – Decision lag – Effect lag • Monetary policy should follow simple rules and not try to adjust to shifting economic situations. – In particular, if an economy’s GDP normally grows at the rate of 3.5% per year, then its central bank should increase the quantity of money at the same rate every year. This will keep prices stable over the long run. – Friedman consequently favored the abolition of the Federal Reserve docsity.com Natural rate of unemployment • In the long run there is no tradeoff between inflation and unemployment. • Sustained attempts by the government to keep unemployment below the natural rate will lead to accelerating inflation – The argument emphasizes the importance of inflation expectations docsity.com Flexible Exchange Rates • Friedman was among those who first realized - and could explain - why the Bretton Woods System with relatively fixed rates of exchange was bound to break down sooner or later. docsity.com