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This paper analyses the general equilibrium and disequilibrium effects of fiscal policy when fiscal instruments have direct impacts on both aggregate supply and demand. A model is specified which incorporates the direct impacts of expenditure and tax instruments on the behavioural function for individuals and firms and which explicitly recognises the role of public production and supply. In contrast to simple Keynesian and neoclassical models, this model involves direct supply‐side crowding out and budget composition effects that operate on both aggregate demand and supply. It also reveals the relative efficiency of various “balanced instruments” under Keynesian and neoclassical conditions.

The recent publication of a sixth edition of Dornbusch and Fischer’s (D&F’s) Macroeconomics will be of interest to many teachers of macro theory. D&F’s text must currently be one of the most widely used intermediate‐level guides to macroeconomics; as the authors themselves tell us, the book has been translated into many languages and is in use around the world “from Canada to Argentina and Australia, all over Europe, in India, Indonesia and Japan, from China and Albania to Russia”. The undogmatic “middle‐of‐the‐road” approach, together with the careful and clear presentation characteristic of this user‐friendly textbook, has won it many friends.

This note shows that much conventional macro‐economic literature uses two inconsistent definitions of equilibrium in the commodity market. Equilibrium is defined as income equalling expenditure when deriving the IS curve; but when overall equilibrium is treated the requirement for equilibrium is that planned supply equals planned demand. The note shows that these inconsistent definitions lead to a confusing and often erroneous exposition of disequilibrium behaviour.

The objective in this paper is to review several theoretical issues associated with fiscal policy and to test these theories via a reduced form real GNP equation using quarterly U.S. data from 1958 through 1966. Theoretical work by Friedman, Holmes and Smith, and others suggest (for different reasons) that fiscal policy may be ineffective. Holmes and Smith point out that increases in taxes may conceivably increase aggregate demand if the demand for money depends on disposable income. Higher taxes shift the IS curve to the left as usual. However, higher taxes reduce disposable income and decrease the demand for money. With a constant money supply, the LM curve shifts to the right and the lower equilibrium interest rate increases aggregate demand. The net effect of the opposite shifts in IS & LM could conceivably be an increase in income. Similarly, lower taxes may conceivably lower equilibrium income. The argument of Friedman and others runs along different lines. They emphasize that any change in government expenditure or change in taxes may temporarily alter real income, but any “pure” fiscal policy must be accompanied by a change in government debt. The larger debt that accompanies a fiscal expansion raises interest rates and eventually reduces private demand. The fiscal expansion can allegedly “crowd out” private expenditure completely so that the net long run effect on real income is zero.

The focus of this paper is the economic theory of the plans for the European Monetary Union. Part 1 demonstrates that economists, bankers and policy makers know very little about monetary policy. Part 2 explains the errors of the common practice of defining money by its functions. Because any monetary policy must rest on a definition of money it seems reasonable to conclude that a flawed definition might lead to problems with monetary policy. Part 3 applies this insight to the plans for a common currency in Europe. Because of uncertainties about the timing and details of the implementation, some important considerations are necessarily speculative. They are relegated to appendices. Appendix 1 comments on the timing and authorship and responsibility for the official reports with their unspecified authors. Appendix 2 supplies some grounds for doubting the ultimate durability of the European Monetary Union focusing on reasons that are historical, economic and pragmatic. Because the entire movement is driven by politics, not economics, Appendix 3 considers some of the relevant political issues. The conclusions summarize and speculate on possible reasons for successful outcomes.

The purpose of this paper is to provide an alternative way of calculating the deadweight loss triangle in oligopolistic markets which takes inefficient use of inputs into account. The author shows that the result of the approach coincides with the one that exists in the economics literature. However, the author explicitly accounts for the inefficient use of inputs.

The market supply curve that is extensively used for competitive markets has been reconsidered for the imperfectly competitive markets. The necessary condition for the efficient use of resources is investigated and a price level is derived at which the market output of oligopoly is produced efficiently. The degree of inefficient use of inputs is reported via the definitions of Input Inefficiency Measure (IIM) and the Ratio of Inefficient usage of Inputs to Total Deadweight Loss (RITD).

The author discovers that the area under the supply curve of the competitive market corresponds precisely to the minimum total costs of producing any given market output. To make this important finding operational in imperfectly competitive markets, the IIM reports the degree of distorted input allocation among firms with differentiated cost structures in producing a given equilibrium imperfectly competitive market output. In measuring the monopoly power, it is known that CRn or HHI market concentration indexes, which are calculated based on the market shares of firms regarding the demand side of the market, are widely used. The measures, which take into account of the distortions in input usage, and hence, the supply side may be considered as an additional index. For example, if the market demand were shared equally by two firms (no dominant firm with respect to the demand side), it is known that the leadership would still arise when the costs of firms differed as in the dominant firm model in favor of the lower cost producing firm.

The author recommends some more theoretical research extensions of the approach suggested here to other oligopolistic markets like the Cournot-Nash, the Stackelberg and other models. In all cases, there is a need for additional work to find some measurable variables in practice in order to estimate the input inefficiency given by the two measures and differentiate it from the inefficiency of units of outputs that are not produced.

It may be interesting to decompose the various estimates of welfare losses due to monopoly power as a percentage of GNP that were discussed in the literature into two inefficiency components: units of outputs that are not produced and units of inputs that are misallocated among firms.

The government officials might be interested in assessing the degree of loss of input usage by firms in addition to output loss in oligopolistic markets summarized by the two inefficiency indexes. Law economists may be inspired in discussing the issue of input inefficiency in the context of on antitrust policy.

The author emphasized that the area under the market supply curve minimized the aggregate cost of producing a given total market output in competitive markets. Having recognized the importance of this finding, the author tried to apply it to imperfectly competitive markets and especially to the calculation of deadweight loss in such markets. The author showed that the total social cost could be calculated by including the input inefficiency which can be defined as the extra cost to society arising from not using the most appropriate economic resource allocation among firms in addition to the usual deadweight loss triangle. Moreover, the author had to introduce some more new terms like the market supply curve allocation, the adjusted competitive price, efficiency gain and so on, as they were necessary along the course of the analysis.

Considers the treatment of openness and imperfect competition in the influential analysis of Layard, Nickell and Jackman′s (LNJ′s) Unemployment: Macroeconomic Performance and the Labour Market. Clarifies and completes LNJ′s treatment of openness through the provision of explicit analytical solutions to their model under fixed and flexible exchange rate regimes. Also provides a (largely informal) analysis of the sensitivity of the LNJ model′s results to the particular forms of imperfect competition assumed. It is argued that openness is crucial to the model′s properties, whereas imperfect competition is not. However, imperfect competitive behaviour may, more generally, have a major impact if it is not confined to the “well‐behaved form” allowed by LNJ.

The purpose of this paper is to develop an analysis of the improbable events of housing market bubbles occurring in a period when US and UK central bankers were responding to perceived risks of a new deflation.

The methodology focuses on how the anti-deflation policies implemented by the Federal Reserve and the Bank of England contributed to the housing market bubbles. The central bankers perceived the deflation as a Keynesian short-run deficiency in aggregate demand, triggered by a financial crisis. Indications are that the deflation is in the nature of long-run aggregate-supply-driven trend as explained in Veblen’s theory of “chronic” deflation driven by cost-reducing advances in technology and globalization.

The Keynesian anti-deflation policies of the Federal Reserve and Bank of England failed to counter the deflation risks while contributing to housing market bubbles. Moreover, the policies failed to address the structural problems of unemployment and income inequality associated with long-run aggregate supply deflation.

Effective policies must be based on a correct theoretical understanding of the problems. The chronic nature of the new deflation points to the need for new approaches to deal with the negative income and employment effects that exclude an increasing number from the housing markets.

This paper aims to examine the effects of marginal and general wage subsidies on employment and income distribution.

The paper constructs a theoretical, partial‐equilibrium model of an economy in which a large number of competitive firms produce a homogeneous output good. Involuntary unemployment arises from a too high and rigid wage. By conducting comparative static analyses, the paper evaluates the impact of general and marginal wage subsidies on employment and incomes.

The paper shows that a marginal wage subsidy is a fiscally more efficient instrument for employment creation than a general wage subsidy because it resembles a combination of a general wage subsidy with a profit tax. These favorable effects persist even if between‐firm displacement effects are taken into account.

In line with most of the literature on marginal employment subsidies, attention is restricted to a partial‐equilibrium analysis in which the wage is assumed to be fixed. This helps to sharpen the focus on between‐firm competition, but is perhaps implausible when analyzing a general‐equilibrium setting. The inclusion of endogenous wage setting is bound to provide an interesting area for future research.

If politicians want to implement a wage subsidy scheme that has to be self‐financing, marginal wage subsidies are an effective policy instrument for employment creation. Its downside is an inefficient allocation of labor among firms, because some firms become larger than is necessary.

The paper provides a novel approach to model the between‐firm displacement effects of marginal wage subsidies and derives policy conclusions.

The purpose of this research is to present an Islamic monetary theory of value by analyzing real prices and real money in terms of gold and silver in Egypt from 696 to 1517, a period of 821 years from the Umayyads to the Abbasids.

This paper adopts a quantitative empirical investigation derived from a full population of secondary data to deductively evaluate the measure and store of value functions of money, to affirm an Islamic monetary theory of value, which is also inductively researched through a qualitative interpretation of documentary and content analysis of Islamic and numismatic literature.

The Islamic monetary theory of value leads to an Islamic equation of exchange that reconfirms the outcome of this research, where a high value of money ensures low constant real prices over the long term.

The findings are based on an empirical investigation involving a single price of wheat series as a reasonable proxy for changes in wholesale commodity prices generally, which was successfully adopted by other studies.

The significance for modern monetary policy is that monetary authorities should adopt an Islamic monetary theory of value to achieve genuine monetary and price stability.

Through an Islamic equation of exchange, price stability would ensure real economic growth that protects wealth for holders of money due to a stable purchasing power, and combined with Islamic equity finance, more efficiency in allocating investible resources to increase gross domestic product and employment.

The Islamic monetary theory of value ensures that there is no transfer or confiscation of wealth through inflation, which would impart gains to the issuer due to the excessive supply of money in relation to demand.