Monetary policy to aid Inflation control

Monetary Policy and Inflation control

In the general output model of demand and supply we have downward slopping demand curve and upward slopping supply curve.

When it comes to monetary policy we use the short term and long term demand and supply curve. In the short run the monetarists demand/supply curve is similar to the general equilibrium model mentioned above. In the long term though the supply curve is upward slopping  but the demand curve is perfectly elastic meaning it is a straight line perpendicular to the x axis where price is the index and y-axis quantity.

This means that in the long run economy need be prepared for meeting this theoretical norm of long  term monetarists demand/supply curve as being visible in US and how they do it. With a gradient the environment need be changed if it cannot be done faster for welfare based policies and economic and commercial infrastructure. Social and cultural norms need be changed to fit into these welfare models.

Then we will see that the inflation is tamed in the long run inspite of having reached the full employment equilibrium. If the nation is  not planned up  and prepared for the long term demand/supply curve criterion of monetarists then we can evince spiralling inflation when it is growing and developing with the money loosing its meaning and functionality which can be very painful for those who live here. in the long run.