Why did Milton Friedman believe that, in long run, it is futuile to try to maint

Question

Why did Milton Friedman believe that, in long run, it is futuile to try to maintain full employment by managing the level of aggregate demand in the economy? How do Friedman’s views in this regard provide an explanation for the phenomenon for stagflation? Why did Milton Friedman believe that, in long run, it is futuile to try to maintain full employment by managing the level of aggregate demand in the economy? How do Friedman’s views in this regard provide an explanation for the phenomenon for stagflation?

Explanation / Answer

According to Milton Friedman, money supply affects real output in short run only. But in long run, money supply does not affect real output. money supply affects only general price level in long run. If aggregate demand is increased, it will produce inflation only. According to Milton, increase in inflation leads to rise in wage rate or now workers consider inflation while demanding wage rate. Thus, it causes rise in cost of production and Phillips curve shifts to right which corresponds to higher unemployment or less output and higher inflation.

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