Money in The Production Function: An Alternative Test Procedure

Abstract

This paper discusses and applies an alternative test procedure to the debate regarding the inclusion of real money balances in the neoclassical production function. The alternative test procedure involves the development of a counterexample of the model of a theory being tested and simultaneously testing the model and its counterexample using the same testing conventions and procedures. The results obtained by using the test procedure cast doubt on the practice of including real money balances in the neoclassical production function.

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