Abstract
The Barro-Grossman theory of the demand and the supply multiplier is generalized in the following ways: Household behavior under disequilibrium is derived from the knowledge of the behavior under equilibrium using the Tobin-Houthakker theory of rationing. The setting of prices and wages under equilibrium and disequilibrium conditions is analyzed. It is shown that the value of the demand multiplier depends on whether employment is instantaneously adjusted during a depression. The results of the microeconomic analysis are used for constructing a macroeconomic model where the interactions between inflation and quantitative adjustments are studied.
I am grateful to Karl-Gustaf Löfgren for comments on an earlier version of this paper. An extended version of the paper was presented at the European Meeting of the Econometric Society in Helsinki in 1976. The report is financed by the Bank of Sweden Tercentenary Foundation.
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© 1978 The Scandinavian Journal of Economics
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Siven, CH. (1978). The Interaction Between Multiplier and Inflation Processes. In: Strøm, S., Werin, L. (eds) Topics in Disequilibrium Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-03917-3_6
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DOI: https://doi.org/10.1007/978-1-349-03917-3_6
Publisher Name: Palgrave Macmillan, London
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