This is one view placed forth by the macroeconomist, who believes that there is a certain amount of self-regulating feature that is present in the economy and this to a great extent helps in maintaining the standards of full employment level in the economy.
It is imperative that in such an economic situation, it is taken that the monetary policy that is followed by the economy does not follow the general rate of growth of the economy. This term was initiated by Karl Brunner, who co joined the views of Milton Friedman as well as himself to provide a detailed analysis of the concept.
This concept is primarily associated with those economic forces that to a great extent concerned with determining aggregate demand rates as well as aggregate supply level on a short term rate.
In present times, this is the fundamental policy that is used in determining most economic scenarios.
Fluctuations in Aggregate demand scenario:
In this case, monetarist view is taken into consideration and the most influential factor on the level of aggregate demand is total amount of money that is prevalent on the economy. In this case, the US economy states that the monetary amount that is to be placed in the economy is taken to be as per regulation of the Federal Reserve.
If the Federal reserve keeps the money growing at an approximate rate of general pace, there will be certain changes in level of aggregate demand rate, but to a great extent it will be minimized. Hence, rate of fluctuations in demand rates will be minimized comparatively and it is taken that the economy works at a complete level of full employment.
However, certain changes can be found if the Federal economy at this point reduces the monetary flow in the economy as well as lowers the rate of growth that the economy follows at a normal level. In this case, economy goes into a position of recession and therefore as per views presented by the monetarist society, it can be seen that changes in monetary policy is the main reason for recession that is present in the economy.
Response in terms of Aggregate supply level:
In this case, the short run aggregate supply level is taken into consideration and hence it is taken to be at the same level as that of Keynesian theory. In this case the monetary wage rate is taken to be sticky one.
Now with the economy facing a certain amount of recession, minus any aid there can be rates of full employment. In this way, it can be stated that adequate response is given in regards to aggregate supply.
The policy in terms of monetarist economy:
This policy is quite similar to the fiscal policy as placed in terms of classical views. Since taxes provide a certain amount of disincentive that it is imperative that taxes should be lowered so that potential GDP does not face a certain amount of decrease.
The approximate conditions that is required for this policy to function is monetary amount on a certain steady path and then there is no level of stabilization available for bringing about changes in regards to aggregate demand rates.