--- Robert Leeson <[log in to unmask]> wrote: > If it is legitimate to ask students (no questions > asked) to double M/P (by cutting P in half while > keeping M constant, and thus sliding down an AD > curve) Who is saying "no questions asked"? I for one always welcome questions. > why don't we also show them (no questions > asked) how to achieve nirvana by doubling M while > keeping P constant (thus doubling M/P and shifting > the AD curve outwards)? We can indeed show this, hypothetically (WITH questions asked). Even realistically, the immediate effect of a small money injection can be an increase in output with no change in p, as it takes time for prices to rise, provided that the money injection is a surprise. Also, suppose one lives in an island with one product, gold, which is also the global money, and one import, corn. Doubling the exports of gold (thus doubling M in the island) can indeed double AD and the import of corn, with no change in prices, assuming little effect on global corn production. > This latter science fiction conjecture would expand > AD along a horizontal trajectory (an AS curve?) > until we reached capacity constraints. At the > "stroke of a pen" (as Ted Heath once said) we could > render redundant a large part of macroeconomics and > achive full employment with stable (indeed fixed) > prices. All economic models are science fiction. Ludwig von Mises, for example, in Human Action, has the model of the evenly rotating economy, where there is no uncertainty or innovation or depletions. It is fiction, but useful fiction, just like the frictionless plane of a physicist is fiction but useful. These models help us undersdtand change (with Mises) or friction (in physics). We routinely distinguish hypothetical situations from what actually happens in the real world. For purposes of instruction, I see nothing wrong in explaining (perhaps because a student asks a question) what would happen hypothetically with a fixed p and an increase in M, but then explaining that in reality, a greater M would, given time, or even simultaneously given expecations of inflation, nullify the premise of a constant p. > How many devils were set loose by > the Heath-Nixon attempts to fix P (while pushing > central banks to expand M)? All textbooks show a vertical AS in the long run. And expections can make it so also in the short run. Even Keynesian models usually show upward sloping, not horizontal, p. Nixon et al evidently believed that inflation was being perpetuated by momentum (MV) and that price controls would halt the velocity momentum (V). My conjecture (I have no textual evidence) is that Nixon and his advisors thought that V was a major part of theh problem, which if reduced, would reduce price inflation even if M was not reduced. Did they really "push" central banks to increase M? Fred Foldvary