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

  • Trout Rader
Part of the Theory and Decision Library book series (TDLU, volume 13)

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 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Table of Symbols

c

national income

D(x)

a positive diagonal matrix

d= (di)

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

qt

a price index at time t.

r

rate of inflation teR 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

xij

factors used in industry i

x

(X i ) = factors employed

x

(x j ) = supply of factor

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Copyright information

© D. Reidel Publishing Company, Dordrecht, Holland 1977

Authors and Affiliations

  • Trout Rader
    • 1
  1. 1.Washington UniversitySt. LouisUSA

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