Monetarism Theory in Vietnam's Economy

Introduction

The global economy has experienced a number of remarkable variations, such as The Great Depression of the 1930s and the tough period of the 1970s, which led to the adjustments and changes in monetarism policy. Therefore, it cannot be denied the great contributions from a number of famous experts in economy in general and macro-economy in particular, such as Adam Smith, John Maynard Keynes, and especially Milton Friedman, who have dedicated their direct guidance to strengthen the economy which is known as Monetarism theories. In specifically, Vietnam is one of the countries which is suffered from the difficulties of the high rate of inflation, which mostly can result from the government’s excessive expansion in the money supply. This essay will examine the core theoretical ideas behind Milton Friedman’s approach towards inflation and also concentrate on the strengths and weaknesses in realistic practices and highlight the positive influences in Vietnam’s economy in the long term.

Understanding

Keynes (1943) argue that the government and the monetary authorities should be carried out the loosen monetarism policy through increasing the quantity of money which can support to maintain and stabilize the national macro-economy. In addition, he also believes that the restricted growth in the money supply is not a sufficient condition to stabilize the price level. His approach has achieved the decline in unemployment rate and the increase in price level and wages in the tough term of the 1970s. However, it also led to the high rate of inflation because the government has provided the excessive quantity of money at that period. In contrast, according to Friedman 1980a, “Money restraint is a sufficient condition for controlling...

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...allocate the resources to avoid the inefficient investment capital, budget deficit as well as avoiding the danger of high inflation rate. Moreover, it should be supposed to maintain a steady growth in money supply, which is estimated for 4-5% because it can be a suitable method to achieve steady economic growth without suffering inflation.

Conclusion

Friedman’s approach has been a great contribution towards inflation issue in the tough period of 1970s. His solution is to restrict the expansion in currency and pay the short term price of increased unemployment. This theory supports to stabilize the overall price development as well as the price level which helps both consumers and firms to make informed and better decisions of expenditure and investment. However, it also generates some difficulties against enterprises, especially in Vietnam macro-economy’s case.