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The ‘Complete’ Model with a Wealth Effect

In: A Critique of Neoclassical Macroeconomics

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  • John Weeks

    (Middlebury College)

Abstract

The final version of the synthesis model which we consider introduces the wealth effect. It differs from the real balance effect model in Section 6.1 in an important respect. In that model the only form in which wealth could be held was money. Once the demand for money is interest elastic, the former treatment is no longer sufficient, for the model includes bonds. It is important to stress that the inclusion of bonds as part of wealth is not arbitrary, but logically necessary. If the demand for money is interest elastic, then there are bonds in the system and these bonds are part of wealth; if the demand for money is not interest elastic, then one is back to the naïve ‘classical’ model of Chapter 5.

Suggested Citation

  • John Weeks, 1989. "The ‘Complete’ Model with a Wealth Effect," Palgrave Macmillan Books, in: A Critique of Neoclassical Macroeconomics, chapter 7, pages 100-110, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-20296-6_7
    DOI: 10.1007/978-1-349-20296-6_7
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