A system dynamics model is presented to analyze fiscal and monetary policies. The model describes an economy which suffers from infrastructure shortage. Further, government is responsible for the development of infrastructure. The model demonstrates the contradiction between fiscal policy and monetary policy in offsetting the rise of inflation. The contradiction can be addressed in terms of time horizon—from a short-run and a long-run perspective. In order to control inflation, a monetary policy may suggest a reduction in the rate of increase in money supply. This can be done by restricting dudget deficit based on inflation. In contrast, a fiscal policy may suggest that in order to control inflation, aggregate supply (of goods) must be increased. An increase in aggregate supply requires infrastructure; thus, budget deficit expansions is unavoidable. The model also shows that a policy which restricts new project initiation based on government budget availability causes a lower inflation rate, particularly in the long run, without decreasing the production growth rate.

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Date created

• 1994

Type

• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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fe35db792b573af835d96e6eba4759cd

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Collection

System Dynamic Society Records

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Collecting area

• This collection is part of the University Archives