Monetarism is one of the economic schools of thought, which states that the money supply (the total quantity of money in an economy) is the main determinant on the demand side of the economy short term. activity. Monetarism was widely popularized by the leading exponent of monetarism, Milton Friedman, who created a macroeconomic theory that the money supply should remain stable for the economy to grow. Monetarism is largely different from the Keynesian school of economic thought which states that government is the primary determinant. While both schools of thought have their strengths and weaknesses, this article will focus primarily on monetarism. Is monetarism a valid economic theory? In other words, how well does monetarism predict economic movements, particularly based on the money supply? But before finding and drawing answers, monetary theory must be well defined. The origin of monetarism dates back to 1945, when American economist Clark Warburton was credited with giving the first solid monetarist interpretation of the business cycle. During this period, however, monetarism was not widely known throughout the economy, especially since the economies did not experience serious inflations as they remained stable and Keynesian economics operated until the 1960s. However, in the 1970s, economies around the world experienced high inflation and hyperinflation due to economic crises, oil shocks, slow growth, and high unemployment. Governments around the world have experienced high debt and stagflation, which is a state of high inflation and high unemployment. Keynesian theory, which advocated increased government spending, appeared to have no effect during this period as spending more simply increases…middle of paper…success. The policy adopted by the Australian government was simple: control the money supply. The Reserve Bank Board controls the money supply, which is responsible for monetary policy. From day to day, the Council issues a target cash rate (rate applied on overnight loans between financial intermediaries) to maintain market conditions. This links directly to monetarism as the theory focuses on the money supply. However, the theory of monetarism does not adequately explain why the policy has been successful. This is because, according to long-term monetarism, the influence of the money supply is only on the price level. In Australian monetary policy, the long-term money supply is not controlled by the price level, but through interest rates. So monetarism does not explain why Australian inflation has fallen and remained broadly stable for 20 years.