|
|
| Line 1: |
Line 1: |
| In [[macroeconomics]], the '''classical dichotomy''' refers to an idea attributed to [[classical economics|classical]] and pre-[[Keynesian]] economics that [[Real versus nominal value (economics)|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 rate]]s can be completely analyzed without considering what is happening to their nominal counterparts, the money value of output and the interest rate. In particular, this means that [[real GDP]] and other real variables can be determined without knowing the level of the nominal [[money supply]] or the rate of [[inflation]]. An economy exhibits the classical dichotomy if money is [[neutrality of money|neutral]], affecting only the price level, not real variables.{{citation needed|date=August 2012}}
| | Marvella is what you can call her but it's not the most feminine name out there. Years in the [http://www.article-galaxy.com/profile.php?a=165109 at home std testing] past he [http://Www.Neweracinema.com/tube/blog/181510 std testing at home] moved to std home test North Dakota and his family members enjoys it. To gather coins is what his family and him enjoy. In her professional life she is a [http://Www.Huffingtonpost.ca/colette-kenney/dating-with-herpes_b_1609226.html payroll clerk] but she's usually wanted her personal company.<br><br>home std test kit [http://Www.mayoclinic.org/diseases-conditions/sexually-transmitted-diseases-stds/in-depth/std-testing/art-20046019 Feel free] to surf to over the counter std test my blog - [http://essexsinglesnights.co.uk/groups/cures-for-any-candida-tips-to-use-now/ http://essexsinglesnights.co.uk/groups/cures-for-any-candida-tips-to-use-now] |
| | |
| The classical dichotomy was integral to the thinking of some pre-Keynesian economists ("[[Veil of money|money as a veil]]") as a long-run proposition and is found today in [[new classical economics|new classical]] theories of macroeconomics. [[Keynesian economics|Keynesians]] and [[Monetarism|monetarists]] reject the classical dichotomy, because they argue that prices are [[sticky (economics)|sticky]]. That is, they think prices fail to adjust in the [[Long run and short run|short run]], so that an increase in the money supply raises [[aggregate demand]] and thus alters real macroeconomic variables. [[Post-Keynesians]] reject the classic dichotomy as well, for different reasons, emphasizing the role of banks in [[money creation|creating money]], as in [[monetary circuit theory]].
| |
| | |
| ==Controversy==
| |
| [[Don Patinkin]] (1954) challenged the classical dichotomy as being inconsistent, with the introduction of the '[[real balance effect]]' of changes in the nominal [[money supply]]. The early classical writers postulated that money is inherently equivalent in value to that quantity of real goods which it can purchase. Therefore, in [[Walras]]ian terms, a [[monetary expansion]] would raise prices by an equivalent amount, with no real effects on [[employment]] or output. Patinkin postulated that this inflation could not come about without a corresponding disturbance in the goods market. As the money supply is increased, the real stock of money balances exceeds the 'ideal' level, and thus expenditure on goods is increased to re-establish the optimum balance. This raises the price level in the goods market, until the excess demand is satisfied, at the new equilibrium. He thus argued that the classical dichotomy was inconsistent, in that it did not explicitly allow for this adjustment in the goods market. Later writers (Archibald & Lipsey, 1958) argued that the dichotomy was perfectly consistent, as it did not attempt to deal with the 'dynamic' adjustment process, it merely stated the 'static' initial and final equilibria.
| |
| | |
| ==Mathematical representation==
| |
| | |
| If an economy exhibits the classical dichotomy, then [[comparative statics]] analysis can be performed using a [[jacobian matrix and determinant|jacobian]] matrix in block [[triangular]] form. That is, suppose we write
| |
| :<math> \mathbf{J}dy = dx</math> | |
| where <math>dx</math> represents some exogenous shocks (changes in productivity, aggregate demand, money supply, etc., ordered so that all real shocks come first), and <math>dy</math> represents the change in the endogenous variables (output, employment, prices, etc., again listing real variables first). Then the [[Matrix (mathematics)|matrix]] '''J''' can be partitioned into submatrices as follows:
| |
| :<math> \mathbf{J}=
| |
| \begin{bmatrix}
| |
| A & 0 \\
| |
| B & C \\
| |
| \end{bmatrix}
| |
| </math> | |
| In other words, when the classical dichotomy holds, it is possible to calculate how all the real variables change by inverting the submatrix <math>A</math> only, thus excluding all nominal variables like money supply and prices from the analysis.
| |
| | |
| ==References==
| |
| * Roy Green (1987). "Classical theory of money," ''[[The New Palgrave: A Dictionary of Economics]]'', v. 1, p. 449.
| |
| * [[Don Patinkin]], (1987). "Neutrality of money," ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 639-644.
| |
| * [[Huw Dixon]], [http://huwdixon.org/SurfingEconomics/chapter3.pdf Of Coconuts, decomposition and a Jackass: the genealogy of the Natural Rate], [http://huwdixon.org/SurfingEconomics/index.html Surfing Economics], Chapter 3.
| |
| | |
| [[Category:Economics terminology]]
| |
| [[Category:Macroeconomics]]
| |
| [[Category:Economic theories]]
| |
| [[Category:Dichotomies]]
| |
Marvella is what you can call her but it's not the most feminine name out there. Years in the at home std testing past he std testing at home moved to std home test North Dakota and his family members enjoys it. To gather coins is what his family and him enjoy. In her professional life she is a payroll clerk but she's usually wanted her personal company.
home std test kit Feel free to surf to over the counter std test my blog - http://essexsinglesnights.co.uk/groups/cures-for-any-candida-tips-to-use-now