First-round “crowding out” in a generalized IS-LM model |
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Authors: | Geoffrey Woglom |
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Institution: | Amherst College, USA |
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Abstract: | A standard result of IS-LM analysis is that fiscal policy has no first-round effects on income if the LM curve is vertical. IS-LM models, however, are based on the restrictive assumption of a one commodity production technology. This paper relaxes this assumption and shows that complete, first-round crowding out is consistent with a negative interest elasticity of the demand for money. |
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