Norm policy

Norm policy is a method of economic politics that was created by Milton Friedman. Norm politics assumes that monetary growth is maintained at a constant level and that wages should be variable.

The norm policy means that a country must have an inflation target of 2 % plus or minus 1 %. The inflation rate should be kept at this level, and this is the goal for the monetary policy. During recession and unemployment, wages and prices drops which will ultimately increase the production in the country.

During a boom and a labor shortage, wages and prices will be raised which ultimately will reduce the production in the country. Norm policy can lead to long periods of unemployment because it is difficult to obtain variable prices for labor.