A note on the interactions among monetary policy,the tax structure and equilibrium output

The proposition that the level of real income is independent of the money stock, originally discussed by quantity theorists, is currently being debated in terms of the rational expectations hypothesis. In this paper, we consider the interactions among monetary policy, the tax structure, and the supply side of the economy and show a potentially important qualification to this proposition. Further, we argue that the impact of monetary policy on output may be perverse.