The analysis will be conducted within an IS-LM model augmen-

ted by the dynamics of money wages, private capital and

public debt. A macroeconomic shock induces an extended

process of adjustment that is characterized by unemployment.

This in turn requires a dynamic path of monetary and fiscal

policy: As a response to the shock, the central bank

continuouslyadapts the quantity of money so as to keep up

full employment all the time. And the government

continuously accommodates its purchases of goods and

services. Can this be sustained? Or will public debt tend to

explode, thereby driving the stock of capial down to zero?