A Neo-Keynesian Theory of Inflation and Economic Growth by Dr. Shozaburo Fujino (auth.)

By Dr. Shozaburo Fujino (auth.)

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3) Since the required price can be easily obtained in product markets, even if the supply and demand relation is well balanced, market prices rise. (4) In the case where the required wage rate is dependent on the price level, the realizatim of required wage rates accentuates price rises. Inflation which occurs this way can be called "errployrrent inflation" and is closely related to the changes in the market structure which have taken place in connectim with full errployrrent llEasures. That is, errployrrent inflation is a sustained rise in ·the price level caused by the transition of money wage rate from rigidity to flexibility.

Fujino, 1969, ch. 6. 59 resolve the discrepancy between the ooserved secular rise in the ratio of mmey held to income or wealth and the cross-section observation by assuming the hypothesis of diminishing relative risk aversion. Based on that up-coming analysis, we shall suppose here that relative risk aversion is a decreasing function of real income. 'Ihe magnitude of JR is, we assume, smaller in the econonw with high in- come than in the ecmonw with low income in terms of the required wage unit.

S~ denotes the supply of mcney at the in1 tial point. ~ [ x 4) m ] d1:, If the ccntrary happens, the exchange rate is, we suppose, so altered that the situation we are refuring to will be bro~t about. 45 where Po and Ko are the initial values of p and K, respectively. m in Fig. }-8 can be observed, when y~ fluctuates cyclically over time. E. -1m -K~- mi. ~ o . 'l ~ Losl____ y:/T'\f"I i: ;"'11%1-: . , 'I '. '. '. :! - ~iK- +i- - ~I- ~I~:~;K'. Fig. }-8 When we introduce foreigp trade into our system, the short run basic relationship (2.

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