Which economic theory emphasizes that changes in aggregate output and price level are primarily driven by monetary supply and interest rates?

Monetarism is an economic theory that emphasizes the role of governments in controlling the amount of money in circulation. It posits that changes in the money supply are the primary drivers of changes in aggregate output and the price level. Monetarists argue that variations in the money supply can significantly impact economic stability and growth, suggesting that controlling inflation is much more effective through managing the money supply rather than fiscal policy.

According to monetarists, when the money supply increases, consumers and businesses have more money to spend, leading to higher demand for goods and services, which, in turn, can raise aggregate output and potentially lead to inflation. Conversely, a decrease in the money supply can reduce spending power, lowering demand and possibly leading to a decrease in output and deflation.

The fundamental belief in monetarism is that the economy's long-term growth rate is determined by the growth of the money supply, and that manipulations in interest rates can influence this money supply. This theory became particularly influential during the late 20th century, especially in opposition to Keynesian economics, which focuses more on total spending and its effects on output and inflation rather than the explicit control of the money supply. Thus, monetarism distinctly frames the conversation around the relationship between