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An economic theory based on the view that the quantity of money is the main determinant of money incomes. This is often combined with the view that markets tend to clear, and that people form rational expectations. The theory led to the policy recommendation that the best contribution the government can make to stable economic growth is to keep the money supply growing steadily at a rate equal to the growth of aggregate supply plus any target rate of inflation, which may well be zero. In addition, the theory implies that attempts at demand management on Keynesian lines can do no good, and are liable simply to add one more source of shocks to the economy. See also gradualist monetarism.

Subjects: Social sciencesEconomics

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