ABSTRACT
In the heyday of Keynsianism there was a tendency to rely heavily on fiscal policy to control the economy and to relegate monetary policy to a supporting role. While all acknowledged that monetary policy would eventually change consumer behavior, the length of time it would take was thought to be long and uncertain and the size of the effect on the economy difficult to predict. The rise of the Chicago school and neoclassical economics has led to a complete re-evaluation of the role of monetary policy. There is now a range of views, with monetarists generally holding that monetary policy is the major determinant of inflation and the most reliable tool for controlling the economy, and neo-Keynesians assigning it a more or less equal role with fiscal policy. There is, however, general agreement that controlling the quantity of money is of first importance and that, under most circumstances, monetary policy can severely limit what fiscal policy can achieve.
