We talked about the early monetarists on Friday and I posted this question. It's pretty straightforward for most readers of this blog, but perhaps some will get something out of it. Still always good to remember:
Accounting identities/Tautologies vs. Behavioral laws
Posted by Daniel Kuehn at Sunday, November 3, 2013 4:59:15 AM EST
In class we went briefly over how the quantity theory of money is just an accounting identity, and how Wicksell, Fisher, and Keynes pointed out that it's dangerous to draw conclusions from accounting identities without having specific economic theories about the behavior of the variables in the identity.
Another identity you're all familiar with (that we'll work with in studying Keynes in the next couple weeks) is the national income equation:
Y = C + I + G + NX
If I were to present as my argument "The national income equation shows us that if you increase G, government spending, you will increase Y, national income, so policymakers should increase spending in a recession", is this a good or a bad argument for fiscal policy? More importantly (because obviously I wouldn't be asking the question if it was a good argument!): why is or isn't it a good argument, and if it isn't a good argument what would a good argument look like?
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