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Restrictive Versus Permissive Money: Two Is-Lm Views of Pure Fiscal Action

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  • Paul Craig Roberts

    (Stanford University)

  • T.Norman Van Cott

    (Ball State University)

Abstract

Analyzing pure fiscal actions in an IS-LM setting is a common exercise in current macromonetary textbook literature. As far as the role these analyses Abstract assign to the monetary sector is concerned, this literature offers two contradictory portrayals. One describes thefiscal action's initial impact on aggregate demand as independent of monetary adjustments. The monetary sector in this view is relegated to a secondary restrictive role. The other view depicts the initial impact of the fiscal action as being grounded in a simultaneous and supportive monetary disequilibrium. This disequilibrium, moreover, is seen as persisting throughout the multiplier process. Little attention has been directed to this contradiction, even though fundamentally different perspectives on the role played by monetary adjustments are involved. This paper contains an outline of the nature of the contradiction and a discussion ofthefactors important in its resolution.

Suggested Citation

  • Paul Craig Roberts & T.Norman Van Cott, 1978. "Restrictive Versus Permissive Money: Two Is-Lm Views of Pure Fiscal Action," Public Finance Review, , vol. 6(3), pages 267-276, July.
    • Handle: RePEc:sae:pubfin:v:6:y:1978:i:3:p:267-276
    DOI: 10.1177/109114217800600301
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    Cited by:

    1. Lee C. Spector & T. Norman Van Cott, 2007. "Textbooks and Pure Fiscal Policy: The Neglect of Monetary Basics," Econ Journal Watch, Econ Journal Watch, vol. 4(1), pages 60-70, January.

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