Definition of monetarism - What it is, Meaning and Concept

The monetarism is a theory that places the money at the center of all economic activity.Thus, monetarism starts from money to explain the variables of the economy.

The monetary policy , according to this branch of thought, affects the prices and the production .That is why the money offer is key in the gross domestic product ( PBI ), also called product gross domestic ( GDP ).

For monetarism, the prices depend on the amount of money in circulation .This means that a government, through its economic policy, has the possibility of increase or decrease the amount of money circulating and, in this way, influence either directly or indirectly on costs, prices, production, employment, etc.

When the money supply is comparable to the demand for liquidity, according to classical monetarism, prices will remain stable.To guarantee the stability of the economy , then, the government must intercede in the market, although the ideal is that such intervention is the most bounded possible to allow the free play of supply and demand.

Monetarism, in short, is the doctrine that considers that the phenomena of money are decisive in the fluctuations of the economy.It follows from this premise that monetary policy, in charge of the authorities that administer the State , can help improve the economic situation.

Monetarist theory indicates that an increase in the money supply, which implies more checks and cash circulating, increases the production in the short term, although it causes inflation in the long term, that is why rulers must work to achieve balance and promote economic development.