ABSTRACT
Money’s short-and long-run roles in economic stabilisation and growth have produced one of the most passionate debates in economic literature. Economists of the Keynesian persuasion believe that the fundamental problem of economic growth is the lack of adequate accumulation of capital. It arises from various market failures which are responsible for both low savings and underinvestment. According to them, a policy of interest rate ceilings below the equilibrium rate and monetary expansion can promote capital formation. While the former encourages investment by keeping the cost of investible funds low, monetary expansion creates forced savings through inflation, which redistributes income from households with a low propensity to save to those with a high propensity to save. Inflation also induces portfolio shifts towards real investment as returns on financial assets decline with inflation.
