ABSTRACT
It is undoubtedly valuable for those effecting macroeconomic policies, as well as for those affected by them, to know what the policies will do. In particular, it is important for macroeconomic policymakers as well as for corporate planners to know the potential effectiveness of monetary or fiscal policy. As we shall show, there are circumstances which favor monetary policy and others which favor fiscal policy, but because of additional considerations or an inadequate understanding, the government might mistakenly take an expansionary policy action that will not subsequently raise sales or general demand. It is very important for a business executive to know which circumstances will make certain policies ineffective so that a plant is not expanded and debt is not incurred at the wrong time.The key factors that determine whether different policies will or will not be effective are the exchange-rate system in effect and possible conflicting forces on the economy.
