What is the main idea in monetarism?

Answer 1

Monetarists believe that changes in the money supply affect the level of production in a country in the short-run but only affect the price-level in the long run. One key outcome of monetarist thought is about the optimal level of interest rates and thus real money supply: social welfare is maximised when interest rates are equal to 0 and at the level of real money supply which provides this rate. In general, this means two things: 1) that inflation is the result of money supply changes; 2) that inflation has welfare losses due to reallocation of assets. Monetarists believe the government purposely uses the money supply to create inflation to provide some level of revenue for itself, since inflation created by printing money is known as an 'inflation tax' and provides the government with money whose cost is borne by the public. Monetarists believe that the government should not interfere in monetary policy and that they should keep the money supply constant such that the interest remains 0 in the long-run, thus minimising welfare loss.