[MUSIC] Welcome to The Power of Macroeconomics. The purpose of this lesson is to first describe how our money and banking system works. After that, we'll show you how monetary policy may be used to fight recessions and inflation. Monetary or Fiscal Policy? Monetarism or Keynesianism? These became the macro economic questions in the 1970s as the nation found itself fighting a soaring inflation and then a virulent stagflation. In this lesson we're going to explore these questions and explain how Monetarism emerged in the 1970s to challenge the Keynesian orthodoxy Monetary policy involves the use of Changes in the Money Supply to Contract or Expand the Economy. Between the Great Depression, and the height of the Vietnam War, monetary policy largely played second fiddle to fiscal policy. Perhaps, rightly so. After all, fiscal policy had been a resounding success, in lifting us out of the Great Depression in the 1930s. As well as ending a more mild, but nonetheless significant recession in 1949 and 1950. More over, the astonishing success of the Kennedy tax cut of 1964 seemed to provide incontrovertible proof. That Keynesian economics could be used to fine tune the economy. And keep it at or close to full employment with minimum inflation. Nonetheless, even during these four decades of Keynesian triumphs, monetary policy played an important supporting role. Particularly in the 1950s, the Eisenhower administration relied heavily on a tight monetary policy to keep inflation in check. In fact, many critics now believe that an overly conservative monetary policy led to a stagnating economy in the late 1950s. And set up the defeat of Eisenhower's would-be successor, Republican Richard Nixon, in the 1960 presidential election. Nixon of course lost to democrat and Keynesian disciple John F Kennedy who ran on slogan of getting the country moving again. Moving again is actually what the democratic administrations of first John F Kennedy and then Lyndon Johnson did to the economy. In fact, by the end of the 1960s the economy was moving so fast that inflation began to rear its ugly head. By 1969, inflation had crept over 5%, high for those good old days. And by the early 1970s it had jumped to almost double digits. And it was at this point as a new phenomenon known as stagflation began to emerge that monetarism began to challenge the Keynesian orthodoxy. But we're getting ahead of our story. Let's go back to soem basics and let's satrt by defining money.