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Neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real variables, like employment, real GDP, and real consumption. [1] Neutrality of money is an important idea in classical economics and is related to the classical dichotomy.
The Lucas islands model is an economic model of the link between money supply and price and output changes in a simplified economy using rational expectations.It delivered a new classical explanation of the Phillips curve relationship between unemployment and inflation.
In macroeconomics, the classical dichotomy is the idea, attributed to classical and pre-Keynesian economics, that real and nominal variables can be analyzed separately. To be precise, an economy exhibits the classical dichotomy if real variables such as output and real interest rates can be completely analyzed without considering what is happening to their nominal counterparts, the money value ...
However, because prices are sticky in the New Keynesian model, an increase in the money supply (or equivalently, a decrease in the interest rate) does increase output and lower unemployment in the short run. Furthermore, some New Keynesian models confirm the non-neutrality of money under several conditions. [69] [70]
Lucas's model dominated new classical economic business cycle theory until 1982 when real business cycle theory, starting with Finn E. Kydland and Edward C. Prescott, [8] replaced Lucas's theory of a money driven business cycle with a strictly supply based model that used technology and other real shocks to explain fluctuations in output. [9]
Monetary economics is the branch of economics that studies the different theories of money: it provides a framework for analyzing money and considers its functions ( as medium of exchange, store of value, and unit of account), and it considers how money can gain acceptance purely because of its convenience as a public good. [1]
Net neutrality is the concept that all internet service providers (ISPs), governments and corporations should treat all data on the internet the same way. Net Neutrality: What It Means for You and ...
Keynes's biographer Robert Skidelsky writes that the post-Keynesian school has remained closest to the spirit of Keynes's work in following his monetary theory and rejecting the neutrality of money. [ 100 ] [ 101 ] Today these ideas, regardless of provenance, are referred to in academia under the rubric of "Keynesian economics", due to Keynes's ...