Monetarism vs Supply-Side Economics
Monetarism and Supply-Side Economics are two Economic Systems & Schools of Thought concepts in AP Economics that students often mix up. In short: monetarism is monetarism holds that the money supply is the main driver of inflation and economic activity, so central banks should control money growth steadily. Meanwhile, supply-side economics is supply-side economics argues that lower taxes and less regulation boost growth by increasing the incentive to work, save, and invest. Here is how they compare side by side.
Monetarism holds that the money supply is the main driver of inflation and economic activity, so central banks should control money growth steadily.
Led by Milton Friedman, it argues 'inflation is always and everywhere a monetary phenomenon' and favors stable, rules-based money growth over discretionary policy. It builds on the quantity theory of money.
Supply-side economics argues that lower taxes and less regulation boost growth by increasing the incentive to work, save, and invest.
It focuses on shifting long-run aggregate supply right rather than managing demand. The Laffer curve suggests tax cuts can sometimes raise revenue by expanding activity. Critics question the size of those effects and warn of larger deficits.
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