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Monetary and fiscal policy should be merged, which in turn changes the role of central banks

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  • Musgrave, Ralph S.
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    Abstract

    Keeping monetary and fiscal policy separate causes economic distortions, thus the two should be merged. That is, in a recession for example, the government and central bank should simply spend more (and/or collect less tax), and fund the latter from new or “printed” money. Merging monetary and fiscal policy necessitates a different relationship or split of responsibilities as between governments and central banks, but this is not a big problem. Plus the new relationship dispenses with an illogical element in the current typical relationship, namely that both central bank and government influence aggregate demand.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30521.

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    Date of creation: 25 Apr 2011
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    Handle: RePEc:pra:mprapa:30521

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    Keywords: fiscal policy: monetary policy: distortions: Abba Lerner: central banks: national debt: modern monetary theory: functional finance;

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    1. David Colander, 2002. "Functional Finance, New Classical Economics and Great Great Grandsons," Middlebury College Working Paper Series 0234, Middlebury College, Department of Economics.
    2. Musgrave, Ralph S., 2010. "Government borrowing is pointless where a government issues its own currency," MPRA Paper 20057, University Library of Munich, Germany.
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