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A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) Economics Approach to Accumulation During a Period of Inflationary Expectations

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Davidson, P. A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) Economics Approach to Accumulation During a Period of Inflationary Expectations. Credit and Capital Markets – Kredit und Kapital, 14(4), 496-504. https://doi.org/10.3790/ccm.14.4.496
Davidson, Paul "A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) Economics Approach to Accumulation During a Period of Inflationary Expectations" Credit and Capital Markets – Kredit und Kapital 14.4, 1981, 496-504. https://doi.org/10.3790/ccm.14.4.496
Davidson, Paul (1981): A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) Economics Approach to Accumulation During a Period of Inflationary Expectations, in: Credit and Capital Markets – Kredit und Kapital, vol. 14, iss. 4, 496-504, [online] https://doi.org/10.3790/ccm.14.4.496

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A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) Economics Approach to Accumulation During a Period of Inflationary Expectations

Davidson, Paul

Credit and Capital Markets – Kredit und Kapital, Vol. 14 (1981), Iss. 4 : pp. 496–504

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Davidson, Paul

References

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Abstract

A Critical Analysis of Monetarist- Rational-Expectations-Supply-Side (Incentive) Economics Approach to Accumulation during a Period of Inflationary Expectations

This article demonstrates that the Monetarist-rational-expectations view that a sudden widespread increase in inflationary expectations leads to, ceteris paribus, a proportionate increase in the nominal rate of interest, so that the real rate of interest is unaltered (compared to a state of zero inflationary expectations) is logically false. Moreover, it is shown that if there is a sudden widespread increase in inflationary expectations, ceteris paribus, the marginal efficiency of capital is raised. Thus supply-side and Monetarist economists who are searching for logical policies to stimulate investment and savings should be encouraging expectations of even greater rates of inflation and simultaneously urging Central Banks to lower bond prices (nominal interest rates) via open market operations.