Saturday, October 8, 2011

IS/LM continues

Nick Rowe says two markets, money is an accounting utility. Money as a medium of exchange is different, that is what makes IS/LM.

Channel Theory would say that money and bonds are the  two -iLog(i) that might happen in a set of banking transactions.  The theory would say a similar set of two -iLog(i) for real goods, consumer goods and capital goods. Two distribution networks, two products In the real goods channel, the consumer may buy more consumer and less capital (more cans of applesauce and fewer canning machines). And the saver can put some money into long term bonds rather than short term cash. This formulation removes time and replaces it with probability of occurrence, and then assumes the set of exchanges  will be partitioned into maximum  disorder, (make it likely that an ad hoc deliver will not clog the system, it is disorderly enough to avoid collisions)

The trade off between consumer goods and capital goods in the real channel is highly volatile, that's the problem

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