Classical Macroeconomic Theory

  • Apostolos Serletis


We begin with an issue described by David Laidler in the 1993 edition of his book, The Demand for Money: Theories, Evidence, and Problems, as follows

“Macroeconomics is controversial. There is no single model upon whose validity all practitioners agree. One area of disagreement of particular importance is the behavior of money wages and money prices. If these are extremely flexible in their response to shocks to the economy, then so will be the general price level. If they are not, then the price level will be slow moving, or ‘sticky.’ This matters because the general price level is one of the key variables upon which the demand for money depends. If the price level is flexible, then it is free to move to absorb the consequences of shifts in exogenous factors such as the supply of money, and their effects on other variables, notably real income and employment, will be relatively muted. If the price level is sticky, those consequences will spill over onto real income and employment and cause them to fluctuate relatively more.” (p. 8)


Interest Rate Price Level Money Supply Real Interest Rate Nominal Interest Rate 
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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Apostolos Serletis
    • 1
  1. 1.University of CalgaryCanada

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