The Employment Multiplier after Disequilibrium Dynamics

Abstract

This paper concerns modifications in the short-run multiplier analysis in disequilibrium theory by Barro & Grossman and Malinvaud, when changes in asset stocks, wages and prices in the medium run are taken into account by utilizing the steadystate multiplier of government expenditure. The analysis is carried out in the context of a simple macroeconomic model with one good, labor and one asset (money). If wages and prices remain constant in the medium run, the demand multiplier becomes larger than the very short-run analysis suggests, while the supply multiplier even changes its sign from negative to positive. With variable wages and prices, results are in general indeterminate, but sufficient flexibility can make both the demand and the supply multiplier smaller than the immediate very short-run multipliers.

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