ABSTRACT
The adoption of a policy of repressed inflation implies that the government does not believe that the weapons of fiscal and monetary policy alone can cure the body economic without serious injury to the body itself. In particular, governments in the years following World War II did not believe in the use of monetary policy since they considered it purely passive in character. Moreover, the fear of unemployment and the belief that a maintenance of low interest rates is necessary to support investment to prevent unemployment induced many governments to maintain a cheap money policy. Short-run interest rates in the United Kingdom were maintained at a 2 per cent, level for over a decade after the outbreak of World War II. In contrast to the lack of government interest in monetary policy, fiscal policy remained an important weapon to combat inflationary pressures.
