Inflation diagnosis and therapy
In comparison to a pure barter economy the use of money as a medium of exchange provides immeasurable benefits to our Western society. However, such use at the same time provides scope for macro-economic disturbances both of the circular flow of production and expenditures and with respect to income determination and distribution. Inflation, ultimately disrupting the proper functioning of our societies and threatening the very roots of democracy, is the result. Disturbances of the circular flow (demand pull) can be prevented by the proper use of demand management instruments (fiscal policy and monetary policy). The lesson of the sixties and seventies seems to be that the Western world can no longer afford not to develop a third set of instruments, in the form of an incomes policy, to prevent disturbances emanating from income determination and distribution.
KeywordsMonetary Policy International Economic Public Finance Fiscal Policy Western World
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