Who is Milton Friedman?
Milton Friedman (1912-2006),received the 1976 Nobel Memorial Prizefor Economic Science and was a seniorresearch fellow at the Hoover Institution,Stanford University. Alan Greenspan,former Fed Chairman praised Friedmanas one of the 20th century’s major intel-lects. An adviser to many governmentleaders and a prolific writer, Friedman isperhaps best known as an outspoken pro-ponent of political and economic freedomand as the leader of the Chicago School of monetary economics, which stresses theimportance of the quantity of money asan instrument of government policy andas a major influence on business cyclesand inflation.
What were Friedman’s key proposi-tions regarding monetary policy?
He may be best known for hisstatement that “inflation is always andeverywhere a monetary phenomenon.”Friedman believed that changes inmonetary growth affect only prices—notoutput—in the long-run. Although mon-etary policy affects output in the shortrun, this effect wears off in the long run.The rate of monetary growth matters forinflation, but not for output. In the long-run, what happens to output depends onmany other factors, such as enterprise,the productivity and inventiveness of people, the extent of thrift, and the struc-ture of industry and government.
What was Friedman’s view oprice controls?
When the Johnson administra-tion continued emphasizing wage-priceguidelines to restrain inflation, Friedmanspoke out. “Price control by exhortationand threat and use of extra-legal powersnever has worked and never will, exceptto disrupt the economy,” he said.
What is personal saving?
Economi efne aving a ha a o ae-ax income hai no conume. Houehol, heeoe, have ju wo choicewih hei income ae axe—o conume o o ave.
Why would economists be concernedabout low saving rates?
saving i ue o fnance invemen in eal caial, ucha machiney, equimen an new conucion. theeoe,aving i ciical o an economy’ ae o caial accumulaion,which, in un, i elae o economic gowh, labo ouciv-iy an ana o living.
What are the consequences or a countrythat has a low saving rate?
some combinaion o he ollowing i likely—he counywill have a euce invemen ae o, i i inve a a aeexceeing i aving ae, i will have o boow moe omohe counie.
What has happened to the personalsaving rate since the early 1990s?
I ha become negaive, which mean ha he U.s. economyi uing he aving o ohe counie o fnance eal caialevelomen.
Fourth Quarter 2006
Q1-06 Q2-06 Q3-06 Q4-06Growth rate —Real Gross Domestic Product 5.6% 2.6% 2.0% 2.2%*Infation rate —Consumer Price Index 1.9% 5.0% 3.1% –2.1%Civilian Unemployment Rate 4.7% 4.6% 4.7% 4.5%
Personal Saving Rate
SOURCE: U.S. Department of Commerce: Bureau of Economic AnalysisShaded areas indicate recessions as determined by the National Bureau of Economic Research.
P e r c e n t
Did Friedman believe that usingscal policy to stabilize the economywas eective?
Reaffirming his skepticism aboutthe effectiveness of fiscal policy, Fried-man once asked an interviewer, “Howcan the government stimulate the econ-omy by taking money out of one pocketof the public and putting it into anotherpocket?”
How did Friedman dene an idealinfation rate?
Friedman described the ideal rateas “a level that would make it irrelevantto individual and business decisions.”This description became prevalent amongpolicymakers in the 1990s.
The content for Q & A was largely adapted from
Milton Friedman and U.S. Monetary History:1961-2006, Working Paper 2007-002A
, byEdward Nelson, assistant vice president andeconomist at the Federal Reserve Bank of St. Louis.For more information, go to http://research.stlouisfed.org/wp/2007/2007-002.pdf.