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Date: | Fri May 5 08:02:43 2006 |
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With regard to the Lipsey-Ahiakpor exchange, Richard, I believe, is
making the logically (or mathematically) correct point that, with
unemployment, an exogenous increase in the quantity of money which
causes a subsequent increase in aggregate demand need not cause an
increase in prices. It depends on whether there are idle resources.
James, I think, makes one crucial point about aggregate demand -- that
it might result from something besides an increase in money. (Supply
creates its own demand?)
At least other point needs to be made. It is that the idle resources
might also be the result of some factor that mitigates the causal
sequence that Richard describes. Perhaps we should be reminded of the
final lesson of the Phillips Curve episode in the history of thought. It
is that the psychological factors that make a government policy appear
desirable on the basis of statistical analysis may change. More
specifically, the entrepreneurial errors made by workers (the money
illusion) got corrected and a strategy that worked for a time to achieve
its objectives became not only ineffective but detrimental.
You can fool some of the people some of the time...
http://en.wikipedia.org/wiki/Phillips_Curve
Pat Gunning
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