Fiscal policy and demand pressures in Greece, 1958-1978

Abstract

A crucial question to anyone engaged in analysing the inflationary process in a country, is how much has the Government contributed to the generation and maintenance of the high demand pressures. The creation of demand in the economy by fiscal expansionary policies (deficit spending), which promotes the objectives of a rapid growth in income and increase in employment, may create inflationary pressures, depending upon how this deficit is financed and on the initial condition of the economy. In the framework of the conventional IS-LM analysis the effect of a shift of the IS curve on income (deficit spending), depends on the slope of the LM curve, and on whether or not this will shift or remain unchanged, i.e. whether or not the deficit is covered by an increase in the money supply.