Monetarism and the Money Rule

INTRODUCTION

Today we will discuss the Monetarist approach to monetary policy and discuss the neoclassical preference for rules over discretion. Click here to listen to an excellent debate between a Keynesian (Larry Summers) and a Neoclassical economist (John Taylor) on the subject. You should have read the text chapter identified below in the homework section and watched the related videos. We will start class today with you working cooperatively with a partner to find a solution to the "Problem of the Day" and then there will be a lecture on our next topic. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.

HOMEWORK

Read Mankiw (Chapter 36) and watch the following video.

ASSESSMENTS AND ACTIVITIES

Problem of the Day

• 1. Define the following terms: monetary expansion, liquidity trap, and recession.

  2. Explain how the Fed would use one monetary policy tool to remedy a recession, using appropriate diagrams to explain the effect of the policy.

Lecture

• Monetarism and the Money Rule

ENRICHMENT

Related Readings

• Larry Summers and John Taylor Debate (Rules vs. Discretion), April 4, 2012

• Alan Greenspan on His Fed Legacy and the Economy

• Interest Rates

• Money Supply

• 2008 crisis and the lessons of Lehman