Abstract
There is a long-standing belief that while the money supply affects the price level, ‘real’ variables are determined independently. This proposition is generally referred to as the classical dichotomy. Variants of this belief in the inefficacy of monetary policy, its inability to effect anything real, have regained strength with the emergence of the new classical economists. This belief, however, is far from universal, with some economists maintaining that government deficits, while inflationary, displace private investment, while other, more traditional Keynesian economists claim that government deficits and monetary expansion can have real effects without at the same time inducing inflation.
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Stiglitz, J.E. (1988). On the Relevance or Irrelevance of Public Financial Policy. In: Arrow, K.J., Boskin, M.J. (eds) The Economics of Public Debt. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-19459-9_2
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