Monetary and Fiscal Dynamics (Studies in Contemporary Economics)

The analysis will be conducted within an IS-LM model augmen-
ted by the dynamics of money wages, private capital and
public debt. A macroeconomic shock induces an extended
process of adjustment that is characterized by unemployment.
This in turn requires a dynamic path of monetary and fiscal
policy: As a response to the shock, the central bank
continuouslyadapts the quantity of money so as to keep up
full employment all the time. And the government
continuously accommodates its purchases of goods and
services. Can this be sustained? Or will public debt tend to
explode, thereby driving the stock of capial down to zero?