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ON THE INEFFECTIVENESS OF FISCAL POLICY AS AN INSTRUMENT OF MACROECONOMIC POLICY
Author(s) -
Congdon Tim
Publication year - 2009
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/j.1468-0270.2009.01873.x
Subject(s) - crowds , debt , economics , deficit spending , crowding out , government (linguistics) , monetary economics , government debt , fiscal policy , government spending , public spending , economic policy , macroeconomics , market economy , welfare , politics , linguistics , philosophy , computer security , computer science , law , political science
Spending depends on the quantity of money. If an increase in the budget deficit is financed by sales of government debt to non‐banks, the quantity of money is unchanged and public borrowing ‘crowds out’ private spending. But – if the government finances its deficit (or buybacks of existing debt) from the banks – the quantity of money, and hence spending and national income increase.