Abstract
This paper develops a macroeconomic model in which the conventional short‐run system is embedded in a long‐run model, incorporating the dymics of asset accumulation and other longer‐run dynamic adjustments. Most attention is devoted to analyzing the steady state under alternative assumptions regarding government financial policies. It shows how, with full employment ultimately attained, the equilibrium levels of capital, real money balances. real stock of bonds. and the long‐run rate of inflation are simultaneously determined. The effects of an expansion in government expenditure under bond financing and money financing are compared in detail.
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