National Income and the Price Level: A Study in Macrotheory

National Income and the Price Level: A Study in Macrotheory

National Income and the Price Level: A Study in Macrotheory

National Income and the Price Level: A Study in Macrotheory

Excerpt

The purpose of this work is to provide a clear and concise presentation of the theory of national income determination, within a framework of equilibrium analysis, and of some of the problems of theory and policy directly related thereto. Both as a student and as a teacher, I have been dissatisfied with the need to search in many scattered sources for analysis with clarity and depth of the interesting and sometimes controversial issues in this field: the key interpretive articles of Hicks and Lange, the searching ones of Modigliani, Patinkin, and Metzler, the post- 1935 works of Keynes and his followers and critics. Even when one works through these fundamental sources, he is likely to feel that there remain many loose ends and unsettled issues. Is it true, or is it not, that a general equilibrium system derived only from the most elementary assumptions about tastes and production possibilities necessarily has an overall equilibrium solution, including full employment in an acceptable sense? More specifically, are the particular obstacles to such equilibrium that have been suggested based on logically valid considerations, or do they implicitly contradict generally accepted assumptions about economic behavior? Apart from this, what are the characteristics of general equilibrium systems, particularly of the simplified versions used for national income analysis, that are well-established and beyond dispute? What issues are still open, and to what extent can the open issues be clarified and resolved into straightforward questions of fact and logic? These questions indicate the main problem areas in national income analysis, for whose study an integrated and systematic treatment is needed.

My intended approach is to build clear and pertinent analytical models starting at the most elementary level, proceeding as rapidly as possible to the point at which they can be applied to the main interesting problems. Although the text departs occasionally from the main line of thought to deal with peripheral questions, it concentrates primarily on the substantive questions that justifiably have attracted the most attention in the fundamental sources. Accordingly, many hypo-

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