The paper examines the effects of introducing a one-period production lag into what is otherwise a fairly standard macroeconomic model. Depending upon the relative elasticities of aggregate demand and supply it is possible that such a neoclassical model can produce extreme Keynesian results.The response of output to changes in government consumption can be greater even than the simple multiplier; this effect can be greater under rational expectations than under adaptative expectations. Introducing an efficiency wage story into the model leads naturally to the existence of a Phillips curve.
|Number of pages||19|
|Publication status||Published - Oct 1992|