Final answer:
Monetarism is an economic theory advocating for limited government intervention in the economy, focusing mainly on controlling the money supply. It suggests that government should primarily avoid frequent interventions and let market forces operate freely, which was a perspective supported by Milton Friedman.
Step-by-step explanation:
Those who believe in Monetarism argue that the government's role in regulating the economy should be limited to controlling the supply of money. Monetarism theory, which was notably supported by economist Milton Friedman, emphasizes that the government should not frequently intervene in the economy but should be responsible for maintaining the money supply to ensure stability and control inflation. It is a departure from Keynesian economics which suggests a more active role for government intervention.
During the 1970s, Monetarism gained popularity as it was perceived that Keynesian policies could not effectively address economic issues like high inflation, often caused by fluctuations in the money supply. The Federal Reserve did adopt Monetarist policies during this time, leading to a recession but also to reduced inflation rates. This experience showed the impact monetary policy can have on economic conditions.
Another viewpoint that aligns with limited government intervention is laissez-faire economics, which argues for minimal government involvement in economic affairs, trusting that market forces will self-regulate. However, the laissez-faire approach was largely challenged after the Great Depression, leading to the rise of Keynesian economics which favored more government planning and intervention.