 Price Theory in a Monetary EconomyChapter 2 in Keynesian Economics and Price Theory, 2015, pp 15-41 from Springer Abstract: Abstract Price theory in a monetary economy is outlined in this chapter. Prices are considered to equalize demand and supply in a barter economy. However, the function of price changes entirely in a monetary economy. As is evident from daily life, the value of money (the inverse of the price index) is determined by rational belief concerning its future value in itself. If individuals confirm the future devaluation of money, this immediately raises the current price level. In turn, if they are confident about the value of money, the price level becomes stable. However, goods markets are adjusted not by price but by quantity. Thus, when monetary theory is recognized to have intrinsic dynamic properties, quantity adjustment such as the multiplier process emerges consistently with neoclassical microeconomic theory. In addition, the theory outlined in this chapter contains the quantity theory of money as an extraneous rational belief under conditions of market equilibrium. Keywords: Dynamic Keynes Keynes ian cross; Fundamental equation; Confidence Confidence in money; Monetarism as an extraneous rational belief; Indivisibility of labor (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-4-431-55345-8_2 Ordering information: This item can be ordered from DOI: 10.1007/978-4-431-55345-8_2 Access Statistics for this chapter More chapters in Advances in Japanese Business and Economics from Springer |
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