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

  • Musgrave, Ralph S.

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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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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  1. Musgrave, Ralph S., 2010. "Government borrowing is pointless where a government issues its own currency," MPRA Paper 20057, University Library of Munich, Germany.
  2. David Colander, 2003. "Functional Finance, New Classical Economics and Great-Great Grandsons," Chapters, in: Reinventing Functional Finance, chapter 2 Edward Elgar.
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