ABSTRACT
The design of financial policies for the control of the system outlined in Section 6 of the preceding chapter involves the formulation of rules for the prompt adjustment of tax rates to keep the total of domestically produced money incomes on a target growth path and for simultaneous adjustment of the foreign-exchange rate to keep the balance of payments on current account on its target path. The practical application of this idea in the analysis and exercises that follow in this volume centres round the search for a set of automatic control rules that specify precisely how much each tax should be raised or lowered in each quarter in response to the deviations of the actual from the desired development of the total of domestically produced money incomes in the recent past; and similarly for adjustment of the exchange rate in response to deviations of the actual from the desired balance of payments on current account. This constitutes a set of fine-tuned, automatic, feedback rules for the control of the economy. The question arises whether these rules should invariably be observed with unbroken precision or whether there are circumstances in which ad hoc discretionary adjustments should be made outside the rule book in order to meet special and unusual developments.
