The basic tenets of 'Monetarism' are
Select all that apply.
2 marksMacroeconomicsSchools of economic thought and methodologyKeynesian, monetarist and new classical schoolsModerateabout 2 min
GATE 2021 Question 30: Schools of economic thought and methodology
Answer and worked solution
Answer: (A) and (B) and (C)
(A) is correct: Monetarism, associated principally with Milton Friedman, is built on the quantity theory of money () as the central framework for understanding macroeconomic outcomes, particularly inflation.
(B) is correct: Monetarists famously advocate for a strict, predictable, rule-based monetary policy (e.g., Friedman's proposed constant money-supply growth rule) rather than discretionary, activist policy — precisely because they believe discretionary intervention tends to be destabilizing due to lags and uncertainty.
(C) is correct: the monetary approach to the balance of payments and exchange rate determination is indeed a recognized strand of Monetarist thought, extending the quantity-theory framework to the open economy.
(D) is incorrect — this is actually the OPPOSITE of a Monetarist tenet. Monetarists specifically oppose active, discretionary stabilization policy (the Keynesian approach), precisely because of their preference for fixed rules (per B) over activist intervention.
Therefore the correct statements are (A), (B), and (C).
The trap: A;B;C;D
Option (D) sounds like a generically plausible macroeconomic policy stance, and a student who doesn't specifically recall that Monetarism is defined in direct OPPOSITION to activist Keynesian stabilization policy might mistakenly include it as a fourth 'tenet,' when it actually contradicts (B)'s rules-over-discretion principle that IS a genuine Monetarist tenet.
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What this question tests
This question is on Keynesian, monetarist and new classical schools, part of Schools of economic thought and methodology in Macroeconomics.
The competing macroeconomic schools and their core claims.
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Question from the GATE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.