ON THE INEFFECTIVENESS OF FISCAL POLICY AS AN INSTRUMENT OF MACROECONOMIC POLICY

Tim Congdon

Economic Affairs, 2009, vol. 29, issue 1, 80-82

Abstract: 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.

Date: 2009
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