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The Effects of Macroeconomic Policy with a Disparity in Price Elasticity Between Private‐ and Public‐ Sector Demands
Author(s) -
Ishiguro Yasuko
Publication year - 2019
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12201
Subject(s) - economics , seigniorage , fiscal policy , price elasticity of supply , monetary economics , price elasticity of demand , government spending , private sector , private consumption , elasticity (physics) , monetary policy , demand curve , consumption (sociology) , money supply , price level , macroeconomics , microeconomics , welfare , market economy , social science , materials science , sociology , composite material , economic growth
Abstract We introduce a disparity in price elasticity between government demand and consumption demand into a simple money‐in‐the‐utility‐function model. This extension demonstrates that the effect of fiscal policies on production may be positive, negative, or neutral depending on the disparity in price elasticity between sectors. Because the effect of an increase in nominal money supply with constant nominal government expenditure is the opposite to that of a fiscal policy, a fiscal policy financed by seigniorage can have positive, negative, or no effects depending on parameter values. Moreover, the effect of simultaneous implementation of expansionary–contractionary policies depends on how they are combined.