United States – Paul Volcker (1979–1987)
Who was the Chairman of the Federal Reserve who applied monetarist policies in the U.S. between 1979–1987?
✅ Paul Volcker.
Who was the British Prime Minister who introduced monetarist policies in 1979?
✅ Margaret Thatcher.
What is the main goal of monetarist policy?
✅ To control inflation by regulating the money supply.
What is the term for a mix of high inflation and low growth?
✅ Stagflation.
What happened to inflation in the U.S. and UK after monetarist policies?
✅ It fell to single digits.
What major economic problem did the U.S. face in the late 1970s that monetarism tried to fix?
✅ Stagflation: high inflation (13%+) and slow growth.
What was the economic problem in the UK during the 1970s?
✅ High inflation and stagnant growth (the “British disease”).
Which key instrument of monetary policy did monetarists focus on instead of interest rates?
✅ Control of the money supply (e.g., M1, M3).
What type of inflation did the U.S. and UK suffer in the 1970s?
✅ Double-digit inflation.
What short-term cost did both the U.S. and UK face under monetarism?
✅ Deep recession and high unemployment.
What was the main monetarist strategy Volcker used?
✅ Strict control of the money supply instead of interest rate targeting.
Which monetary indicator did Thatcher’s government target to reduce inflation?
✅ The money supply (especially M3).
What happens to interest rates when the money supply is restricted?
✅ They rise.
What negative side effect can tight monetary policy cause in the labor market?
✅ Rising unemployment.
In the long run, how did monetarism affect inflation expectations?
✅ It stabilized them at lower levels.
How high did the U.S. federal funds interest rate rise during Volcker’s policy?
✅ Almost 20%.
What happened to interest rates and government spending under Thatcher’s monetarist policies?
✅ Interest rates were kept high, and fiscal spending was cut.
What fiscal policy is consistent with monetarism?
✅ Reducing government spending and borrowing.
Why did Keynesian demand management fail in the 1970s?
✅ It could not solve stagflation (stimulus increased inflation without growth).
What social problem rose sharply in the UK due to monetarism?
✅ Unemployment.
What were the main results of Volcker’s monetarist policy?
✅ Inflation dropped to 3–4% by the mid-1980s, but it caused a deep recession (1981–82).
What were the main results of Thatcher’s monetarist policy?
✅ Inflation fell from 18% to single digits by 1983, but unemployment rose sharply.
Which famous economist is the father of monetarism?
✅ Milton Friedman.
What global factor worsened inflation during the 1970s?
✅ Oil price shocks.
What is considered the main success of monetarist experiments in the 1980s?
✅ Breaking high inflation and restoring economic stability.