Sunday, March 8, 2009

Fiscal Policy & Quantity Theory

This post relates to the following Keystone Economic Principles:
4. There ain't no such thing as a free lunch.
7. Economic thinking is marginal thinking.

As you might guess from the title of this post, I find the quantity theory of money (MxV=QxP) to be a valuable tool for explaining macroeconomics. But sometimes some find it hard to explain fiscal policy within that framework. Now there's a good post at Marginal Revolution that explains fiscal policy within a quantity theory framework. I found it helpful. Read it through and share whether it helps you or just confuses things further.

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