Milton Friedman explained that increases in the money supply will temporarily reduce unemployment because
A) wages do not respond to monetary policy.
B) unions support policies that increase inflation.
C) inflation benefits lenders.
D) prices rise faster than wages.

Question

Quizplus · Accepted Answer

Milton Friedman, a prominent economist, argued that increases in the money supply can temporarily reduce unemployment because it takes time for wages to adjust to the inflationary effects of the increased money supply. This means that in the short term, real wages (wages adjusted for inflation) may fall, making labor cheaper and encouraging employers to hire more workers. However, once wages catch up to the inflation, this effect diminishes. This concept is part of Friedman's critique of the Phillips Curve, which posited a stable, inverse relationship between inflation and unemployment.

Milton Friedman Explained That Increases in the Money Supply Will