Equilibrium and Disequilibrium in Economic Theory pp 611-649 | Cite as

# Many-Good Multiplier Analysis Under Traditional, Classical and Neo-Keynesian Conditions

## Abstract

The existence, uniqueness and stability of equilibrium are shown for an effective demand system with fixed prices and wages. This corresponds to a very short run, underemployment equilibrium which has four variants, with and without a transaction demand for money and with and without financial intermediaries. Later, with modest success, we allow for variable price levels but fixed relative prices and fixed real rates of interest. A tabulation is made of comparative statics and government stabilization policies in these cases. A major novelty is that aside from any associated increase in government spending, government open-market operations, namely selling bonds, are basically inflationary. This contrasts with the analysis in the IS-LM model, where real interest rates are variable and government open-market operations are deflationary. In the author’s opinion, experience supports the fixed real interest rate postulate and thus we have a strong criticism of the neo-Keynesian approach to short run stabilization policy.

## Keywords

Interest Rate Real Interest Rate Excess Demand Money Demand Full Employment## Table of Symbols

- c
national income

*D*(*x*)a positive diagonal matrix

*d*= (*d*_{i})demand for goods

- δ(
*x*(*ε*)) perturbation in excess demand for factors

- g
exogenous government expenditure

- i
demand for goods by borrowers from financial intermediaries

*k*(*x*)demands for goods by investments financed by intermediaries based upon deposits received from factor owners

- m
multiplier matrixes

- M
multiplier matrixes

- μ
multiplier matrixes

- p
(

*p*_{i}) = price of goods*q*_{t}a price index at time

*t*.- r
rate of inflation te

*R*a non negative matrix- s
(

*si*) = supply of goods*V*(*c*)value of demand at income

*c*.- w
(

*Wj*) = wage of factors- X
(

*X*^{ i }_{ j }) = factors used in industrie per unit output*x*^{i}_{j}factors used in industry

*i*- x
(

*X*_{ i }) = factors employed- x
(

*x*_{ j }) = supply of factor

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