This paper was delivered in December 1967 as Friedman's presidential address to the American Economic Association, which explains the full-page portrait that precedes the text.
The "liquidity preference schedule" is Keynes's term for the relationship between the demand for money and the nominal interest rate.
Friedman's definition of the "natural rate of unemployment" on page 8 introduced this term to macroeconomics.
Questions for analysis
Examine Romer's Figure 6.7 (page 258). How does the behavior of the unemployment/inflation relationship before Friedman's paper differ from the behavior afterward? To what extent was Friedman successful in predicting the change in the Phillips curve?
What is Friedman's fundamental criticism of the Phillips curve? Under what conditions does he suggest that it would shift? Use Friedman's analysis to explain the points on Romer's Figure 6.7 after 1968.
Most modern central banks attempt to balance the twin goals of keeping inflation under control and stabilizing fluctuations in real output. Some, such as the European Central Bank, are more committed to inflation control and others worry more about business cycles. What policy rule does Friedman advocate and why?
In his magnum opus with Anna Schwartz, A Monetary History of the United States, 1867-1960, Friedman is highly critical of the Federal Reserve during the Great Depression. Based on a gold-standard mind-set, the Federal Reserve kept the monetary base more or less constant during a period when fear of bank failures caused both banks and the public to hoard currency. The money multiplier fell sharply, which, with the Fed keeping the base stable, led to a drastic drop in the money supply. Is Friedman's criticism of Fed policy during the Great Depression consistent with his recommendation on page 17 that "By setting itself a steady course and keeping to it, the monetary authority could make a major contribution to promoting economic stability"? Explain.