The Small Union of Two Countries
The focus of this chapter is on fiscal and monetary policy. Fiscal policy is the only policy instrument available at national level to fight unemployment (or, for that matter, inflation). Take for instance an increase in German government purchases. Then what will be the effect on German income, and what on French income? Similarly consider monetary policy by the European Central Bank. Take for instance an increase in union money supply. Then how will German income respond, and how French income?
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