Panoeconomicus 2008 Volume 55, Issue 1, Pages: 39-67
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Money creation, employment and economic stability: The monetary theory of unemployment and inflation
This paper by building on the general theory of the monetary circuit, proves that money-as a pure bank credit liability-exists to overcome constraints on required expenditures by firms, household and mainly the State. From this perspective the paper derives the employment function in the modern monetary economy. Thereby it is explained that full employment policy is both always possible and required. It is proven that this conclusion holds in a perfectly open economy. Ultimately it is explained that there is no trade-off between full employment and sustainable price stability.
Keywords: money, banks, employment, fiscal policy, Phillips curve, inflation, exchange rates, deficit, consumption, investment
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