Money, Price, Output, Interest Rate, and Factor Employment: Comparative Theory

Money, Price, Output, Interest Rate, and Factor Employment: Comparative Theory

Copyright: © 2014 |Pages: 23
DOI: 10.4018/978-1-4666-4643-8.ch010
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This is a chapter in general-equilibrium study of the Walrasian type. It is extended to money, output, and prices along with their other important economic effects (e.g. employment and stability). The Walrasian monetary model and the quantity theory of money model are both compared and contrasted with the endogenous theory of money model in light of the systemic view of unity of knowledge that grounds the phenomenological model in this book.
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The Mainstream General Equilibrium Model Of Money, Prices, Goods, And Productive Factors

The Pareto optimal general equilibrium model of goods, prices and productive factors has been elegantly established by Henderson and Quandt (1971). We will firstly explain textually and then summarize the mathematical result in this chapter.

The Pareto optimal general equilibrium model comprises the simultaneous solution for goods, prices, and factor utilization between the demand side shown by consumer utility, and the supply side shown by the production function. The utility function Ui(qi1*,…,qis*, xi1o-xi1*, …, xino-xin*,Mi) of the ith-consumer, for i = 1,2,….,m, is a function of consumption that equals all of s-number of produced goods of various types denoted by the vector, but also including a quantity of money Mi in our specific case. This vector is denoted by Qi = {qi1, qi2,…,qis, Mi}. The ith-consumer owns n-types of total quantity of primary factors as endowments, with j = 1,2,…,n. Of these given productive endowments, the ith consumer uses xij* for work. Hence he uses (xijo – xij*) for leisure activity. We denote the net supply of productive factors by xi* = {xi1*, xi2*, …, xin*} and the net leisure activity vector is (xio – xi*) = {((xi1o – xi1*), …, (xino – xin*)}.

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