Topic
Monetary Economics
Instructions
For the coursework, you need to read the paper “UK Economic Policy and the Global
Financial Crisis: Paradigm Lost?” It can be downloaded from online notes and is also
attached.
Apply the knowledge you’ve obtained from the course, and try to answer the following
questions:
1. What is Hall’s model? (10 marks)
2. What are the main ideas behind monetarism? (10 marks)
3. What are the main ideas behind the New-Keynesian approach? (13 marks)
4. What was the main goal of monetary policy before the crisis? (10 marks)
5. What are its new goals after the crisis? Why? (13 marks)
6. How have the new goals been implemented? (10 marks)
7. What is the main problem with financial regulation (or banking policy) in general and
specifically following the article? (10 marks)
8. What is/are the main ingredient(s) of the new paradigm according to the authors?
(10 marks)
9. Contemplating the current developments after the paper’s written. What is your
own interpretation of the current monetary paradigm? (14 marks)
Answer Preview
Monetarism is an economic approach grounded on the money supply. The main idea behind monetarism is that the size of the money supply is more imperative than any other economic factor. Monetarism challenges Keynesianism which emphasizes the importance of fiscal policy in stabilizing the economy (Aschheim, 2014). While Keynesianism suggests that high government spending during a recession can quicken economic recovery, Monetarism suggests the role of controlling the money supply to curb inflation. A monetarist approach is particularly critical of expanding fiscal policy on the premise that it will result in crowding out of inflation. According to a monetarist view, inflation results from too much money in circulation. As with other commodities in the market, money in an economy is influenced by the forces of demand and supply. The demand for money decreases when there is plenty in circulation and vice versa. As a result, its value goes down.
Word Count: 3300