Financial Times FT.com

In search of a more dynamic economy

By Edmund Phelps

Published: July 20 2008 18:09 | Last updated: July 20 2008 18:09

Many people see every downturn of employment from a long-sustained plateau as a fall of aggregate demand – “effective demand” in Keynes’s terms. They would have the central bank cut interest rates to restore that demand.

If employment is down because of aggregate demand, the problem can be addressed at zero cost through rate cuts and the ensuing rise in the money supply. Many central banks like to do that: to “lean against the wind”.

You have viewed your allowance of free articles. If you wish to view more, click the button below.

Read this