With which economic perspective is the idea that money supply should adjust to shifts in aggregate demand associated?
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Answer: C. Milton Friedman
Explanation
Milton Friedman argued that monetary policy should follow a steady rule for stability. He believed the money supply should accommodate organic shifts in aggregate economic activity. Monetarist theory warns against discretionary monetary shocks that destabilize aggregate demand. Milton Friedman was a leading figure of the Chicago school of macroeconomic thought. Monetarism emphasizes the critical role of money supply in determining nominal GDP levels. Discretionary fiscal and monetary policies were criticized for creating unnecessary economic volatility.
Central banks adopted monetary targeting frameworks based on Friedman's academic insights. Controlling inflation requires managing the growth rate of money relative to output. Economic stability benefits from predictable rules rather than unpredictable government interventions. Margaret Thatcher implemented conservative fiscal and monetarist policies as British Prime Minister. Ronald Reagan championed supply-side tax cuts rather than monetary aggregate adjustment rules. John Maynard Keynes advocated for active government fiscal intervention during economic downturns.
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