Abstract
This paper reevaluates the relationship between policy instruments and desired target levels when government and private spending are complements. First, the conceptual basis for the inclusion of government spending as an argument in the private consumption and investment functions is examined. Next, we show that a gap arises between the perceived and actual models under which the monetary authorities operate. Thus, the analysis is undertaken under conditions of uncertainty. In view of this, we conclude by showing that the presence of an additional policy instrument enables policymakers to adhere less rigidly to conventional fiscal and monetary measures.
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