Abstract

The two instruments of macroeconomic management available to the government are fiscal policy and monetary policy. Together they determine the total dose of demand stimulus or restraint administered to the economy. The depression is an international one. Losses and wastes due to unemployment and excess capacity are world wide. Indeed other countries are as yet far behind the U.S. recovery. Unemployment is still rising in Europe. Japan and the major nations of Europe are still pursuing restrictive monetary and fiscal policies. The economic plight of the Third World is prominent in news because of the inability of Mexico, Brazil, Argentina and other countries to meet their debt obligations. The debt crisis is also a product of the depression. As each country gets in trouble, its particular difficulties are attributed to its imprudent and over-extended borrowing, and to the thoughtless rapacity of the lending banks in this country and Europe. But problems arise largely from the depression, which has deprived the debtor countries of their export markets in developed economies, and to the high interest rates imposed by the major central banks. In every macro-econometric model, as in every textbook of macroeconomics, additional government spending and reduced taxation have positive effects on aggregate demand for goods and services, assuming monetary policies remain unchanged.