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| Author: | Batra R. |
| Title: | Neutrality and non–neutrality of money in a classical–type model |
| Journal: | Pacific Economic Review
2002 : OCT, VOL. 7:3, p. 489-503 |
| Index terms: | Business cycles Models |
| Language: | eng |
| Abstract: | This paper modifies the simple classical model by introducing capacity utilization that varies across the course of the business cycle. By making the capacity usage a choice variable that turns out to be sensitive to changes in the price level, this paper shows that the classical model loses its fundamental feature, namely the neutrality of money. In the generalized framework, a rise in money supply improves on all the real variables if the economy suffers from excess capacity, as in recessions and depressions. This paper shows that the model describes the various economic crosscurrents during the Great Depression extremely well. |
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