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Is It Possible to Create Goods from Thin Air Using Money and an Expenditure Multiplier?

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  • Gennady Bilych

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    Most sensible people will not think to dispute the fact that any active government monetary policy that has no solid theoretical or empirical grounding should be thought of as an irresponsible experiment with completely unpredictable consequences for the economy. However, as surprising as it may be, this is exactly the policy in use today in many countries all over the world in the hope of overcoming the crisis and reviving national economies. The results of empirical studies on the effects of a certain amount of money on economic growth are rather contradictory and do not allow us to definitively evaluate the effectiveness of government intervention. The Keynes Theory, which for a long time served as scientific proof of the entry of the government to a market, has been the object of fierce criticism for the last 40 years. Little is left of the proud status it once enjoyed. Many economists are still only willing to support Keynes when he states that under certain circumstances, an unexpected increase in the money supply may have a positive effect on the function of the economy. Author argues that such attempts to refute the neutrality of money are theoretically unfounded and contradict empirical data and additional money in a crisis is more likely to be a poison rather than a cure.

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    Article provided by Macrothink Institute in its journal Business and Economic Research.

    Volume (Year): 3 (2013)
    Issue (Month): 2 (December)
    Pages: 156-172

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    Handle: RePEc:mth:ber888:v:3:y:2013:i:2:p:156-172
    Contact details of provider: Web page: http://www.macrothink.org/journal/index.php/ber

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    1. Jean-Pascal Bénassy, 2007. "Ricardian equivalence and the intertemporal Keynesian multiplier," Post-Print halshs-00754250, HAL.
    2. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "What determines government spending multipliers?," Economic Policy, CEPR;CES;MSH, vol. 27(72), pages 521-565, October.
    3. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
    4. Basil J. Moore, 1994. "The Demise of the Keynesian Multiplier: A Reply to Cottrell," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(1), pages 121-133, October.
    5. Benassy, Jean-Pascal, 2007. "Ricardian equivalence and the intertemporal Keynesian multiplier," Economics Letters, Elsevier, vol. 94(1), pages 118-123, January.
    6. López-Villavicencio, Antonia & Mignon, Valérie, 2011. "On the impact of inflation on output growth: Does the level of inflation matter?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 455-464, September.
    7. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
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