This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily conteste

This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily contested, and one of the reasons why I started to dislike my study of economics, because the theory has to make some big assumptions to get any result. The rationale given to not do this is that any policy change from the government is going to affect expectations of the future - if (on balance) most economic actors are rational and know that there will be inflation in the future, they will take steps _now_ to protect themselves from the side effects. If you change policy on both ends, expectations about the economy become uncertain - more so than if there's no change - which means that the market will start to move its investment towards other countries with more predictable economies. Here's a Wikipedia article describing the original proposition that this theory was built on: http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposit...