This chapter highlights the role of the money supply and the exchange rate in an open economy aggregate demand-oriented model of fiscal and monetary policy, including analysis of fiscal versus monetary stimulus and the effectiveness of countercyclical fiscal and monetary policy with inflation targeting.
Nothing has done more in my opinion to lead modern economics astray than the practice which Lord Keynes brought into fashion in the 1930’s of reasoning on the hypothesis of a “ closed economy ”… It is paradoxical that British economists should have led this intellectual fashion, at which Adam Smith , Ricardo, John Stuart Mill, Bagehot, and Alfred Marshall would certainly have knit their brows.
Sir Hubert Henderson , 1949
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