ABSTRACT
The publication of the General Theory ushered in an era in the economic analysis of aggregate variables-macroeconomic theory-in which Keynes ‘method of analysis stood supreme. Fiscal policy became the dominant instrument for direct control by the authorities of the aggregate levels of output and employment in capitalist economies, particularly in the immediate post-World War II period. Keynesian economics became associated with an optimistic view on the ability of the state to control through fiscal policy, the level of aggregate demand and thus output and employment in capitalist economies (Beveridge, 1944). Monetary policy, in contrast, played the role of accommodating fiscal policy by attempting to avoid so-called crowding-out problems by stabilising nominal interest rates at pre-designed levels.
