Effective Demand, Differential Information and the Multiplier

Torben M Andersen

Economic Journal, 1987, vol. 97, issue 386, 353-71

Abstract: The paper develops a rigorous model of the interaction between employment, income and demand. It is shown that when agents are differently informed about the income generated in the economy, aggregate demand shocks create a Keynesian-type unemployment. Moreover, the model explains nominal wage/price stickiness and a multiplier effect so as to imply that a larger burden of adjustment is taken by quantities rather than prices. Copyright 1987 by Royal Economic Society.

Date: 1987
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