abstract

We briefly sketch the Keynesian and monetarist models where prices are flexibly determined so as to clear the markets. When markets are interior equilibrium and prices are equal to the marginal cost, money becomes non-neutral and Keynesian- flavored results such as the fiscal multiplier are obtained. On the other hand, if people hold the extraneous belief that prices proportionately increase with nominal money supply, and further, the increase rate of money is sufficiently small, then the full-employment equilibrium (boundary solution) is attained. Thus, monetarism can uphold only in the limited case.