ABSTRACT
The evil of stagflation consists of (1) output and employment being too low and, simultaneously, (2) the rate of rise of money costs and prices being too high. To control simultaneously these two aspects of the economy requires the use of at least two independent sets of policy instruments. One of these consists of the weapons of financial policy that can affect the level of the total money demand for goods and services, and the other consists of the various influences that can be exerted to affect the level of money wage rates and of other money costs, and thus the level at which money selling prices are fixed. In Volume 1 we have discussed at length the various forms that policies affecting money wage costs may take; and in subsequent parts of this volume we shall discuss at length the various forms that financial policies for the control of the demand for goods and services may take. But for the time being we will talk only in general terms of demand-management policies and of wage-fixing t policies. We have then these two sets of policy instruments to use in attempts to remove the two evils of unemployment and of rapid inflation.
