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Preface to Second Edition | |

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Introduction | |

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Equilibrium Theory as an Approach to Macroeconomics | |

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Preview of the Argument | |

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Example | |

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Regular Case | |

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Irregular Case | |

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Concluding Remarks | |

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Problems | |

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Linear Difference Equations: Part 1 | |

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Introduction | |

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Linearizing Nonlinear Models | |

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Nonlinear Models to Represent Economies | |

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Linearizing Autonomous Equations | |

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Linearizing Nonautonomous Equations | |

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Example of Linearization: The Solow Model | |

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Solving First-Order Linear Models | |

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First-Order Deterministic Equations | |

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First-Order Stochastic Equations | |

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Sequences of Probability Distributions | |

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The Solow Model Revisited | |

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Solving Higher-Order Linear Models | |

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Eigenvalues and Eigenvectors | |

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Higher-Order Deterministic Equations | |

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Diagonalizing Systems of Nonstochastic Equations | |

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Stochastic Vector Difference Equations | |

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Example of a Vector System--The Behavior of the Solow Residual | |

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Concluding Remarks | |

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Problems | |

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Linear Difference Equations: Part 2 | |

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Introduction | |

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Linear Rational Expectations Models | |

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Optimal Growth as an Illustration of a Rational Expectations Model | |

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Solving Linear Rational Expectations Models | |

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Different Types of Rational Expectations Models | |

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Case of a Regular Equilibrium | |

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Solving a Rational Expectations Model by Iterating into the Future | |

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Completing the Solution by Solving Equations that Depend on the Past | |

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Optimal Growth Model and the Solow Model Compared | |

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Cross-equation Restrictions and the Lucas Critique | |

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Dynamics of a Monetary Model--A Second Example | |

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Solving the Example Explicitly | |

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Lucas Critique and the Cross-equation Restrictions | |

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Irregular Solutions | |

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Concluding Remarks | |

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Problems | |

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General Equilibrium Theory under Certainty | |

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Introduction | |

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Idea of Equilibrium | |

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Theory of Consumer Choice | |

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Assumptions about Preferences | |

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Consumer's Problem | |

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Excess Demand Functions | |

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Individual Excess Demand Functions | |

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Aggregate Excess Demand Functions | |

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Equilibria and Their Properties | |

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Some Definitions and Development of Notation | |

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Geometry of Equilibrium | |

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Debreu-Sonnenschein-Mantel Theorem | |

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General Equilibrium Theory and Efficient Allocations of Resources | |

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First Welfare Theorem | |

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Second Welfare Theorem | |

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Concluding Remarks | |

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Problems | |

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Infinite Horizon Economies and Representative Agents | |

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Introduction | |

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Representative Agent Economy | |

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Assumptions about Structure | |

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Assumptions about Preferences | |

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Budget Sets and Market Structure | |

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Consumer's Problem | |

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Competitive Equilibrium and the Planner's Problem | |

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Competitive Equilibrium | |

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Planner's Problem | |

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Using the Representative Agent Model to Explain Time Series Data | |

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Removing the Trend from Data | |

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Simple RBC Model and Its Implications | |

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Regression on a Common Trend: What the Model Tells Us to Do | |

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Hodrick-Prescott Filter: What RBC Economists Actually Do | |

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Calibration and Summary Statistics: How RBC Theorists Measure Success | |

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Concluding Remarks | |

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Transversality Condition | |

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Problems | |

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Infinite Horizon Economies and Overlapping Generations | |

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Introduction | |

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Structure of the Overlapping Generations Economy | |

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Consumer's Problem | |

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Problem of a Young Agent | |

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Problem of an Old Agent | |

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Example of a Pareto Inferior Equilibrium | |

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Case of Early Endowments | |

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Case of Late Endowments | |

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Institutions that May Improve Allocations | |

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Set of Equilibria in the Overlapping Generations Model | |

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Equilibria as Solutions to Difference Equations | |

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Stationary Equilibria | |

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Classifying Economies by Types of Stationary Equilibria | |

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Dynamic Equilibria | |

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Some Questions about the Model | |

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Why Does the First Welfare Theorem Break Down? | |

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When Does Indeterminacy Occur? | |

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When Are Equilibria Efficient? | |

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More General Examples of Overlapping Generations Economies | |

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Kehoe-Levine Approach | |

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Indeterminacy in the OG Model | |

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Concluding Remarks | |

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Problems | |

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Infinite Horizon Economies with Nonconvexities | |

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Introduction | |

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Growth Model with Increasing Returns | |

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Equations That Characterize an Equilibrium | |

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Behavior of the Representative Family | |

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Interpretation 1: Externalities in Production | |

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Interpretation 2: Monopolistic Competition | |

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Empirical Evidence for Increasing Returns | |

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Equilibria in the Increasing Returns Economy | |

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Finding a Balanced Growth Path | |

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Approximate Linear Model | |

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Comparing the Theoretical Properties of RA and IR Models | |

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Why Does the IR Model Display Different Dynamics? | |

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RA Model: An Example of a Regular Equilibrium | |

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IR Model: An Example of an Irregular Equilibrium | |

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Comparing Some Empirical Predictions of RA and IR Models | |

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Contemporaneous Statistics | |

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Dynamic Responses--The Impulse Response Function | |

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Concluding Remarks | |

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Problems | |

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Some Recent Developments | |

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Introduction | |

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New Evidence against Big Increasing Returns | |

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Nonseparable Preferences | |

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Households | |

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Technology | |

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Solving the Consumer's Problem | |

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Equations That Characterize Equilibrium | |

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Example | |

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Two-Sector Models | |

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Technology | |

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Production Possibilities Frontier | |

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Behavior of the Representative Family | |

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Indeterminacy and the Two-Sector Model | |

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Procyclical Consumption | |

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Calibrated Two-Sector Model | |

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Concluding Remarks | |

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Problems | |

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General Equilibrium Theory and Uncertainty | |

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Introduction | |

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Debreu's Formulation of the Problem | |

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Preferences under Uncertainty | |

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Budget Constraints | |

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Arrow's Formulation of the Problem | |

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Trade in Financial Securities | |

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Complete and Incomplete Markets | |

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Multiple Budget Constraints and Incomplete Markets | |

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Infinite Horizon Economies with Uncertainty | |

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Asset Pricing in Lucas Tree Economies | |

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Digression on Market Structure | |

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Asset Pricing in the Representative Agent Case | |

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Concluding Remarks | |

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Problems | |

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Sunspots | |

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Introduction | |

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Do Sunspots Matter? | |

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Complete and Incomplete Participation | |

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Setting up the Environment | |

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Sunspot Theorems | |

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Example of a Macroeconomic Model Where Sunspots Matter | |

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Description of the Environment | |

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Set of Equilibria | |

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Supporting Sunspot Equilibria with Beliefs | |

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Sunspots, Bubbles, and Regular Equilibria | |

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Concluding Remarks | |

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Problems | |

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Macroeconomic Models of Money | |

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Introduction | |

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Rate of Return Dominance and Legal Restrictions Theory | |

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Some Quick Fixes to Rate of Return Dominance | |

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Models of Money | |

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Budget Sets: the Opportunity Cost of Holding Money | |

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Objective Functions: Cash in Advance and Its Relationship to Money in the Utility Function | |

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Dynamics of a Cash-in-Advance Model | |

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Different Types of Monetary Policy | |

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Government's Budget Constraints | |

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Typology of Policy Regimes | |

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Equilibrium under Interest Rate Control | |

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Policy Mix A: Fixed Interest Rates and Zero Debt | |

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Equilibrium of the Real Economy under Interest Rate Control | |

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Equilibrium Rates of Change of Nominal Variables under Interest Rate Control | |

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Indeterminacy of the Nominal Scale of the Economy under Interest Rate Control | |

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Economics of Indeterminacy under Interest Rate Control | |

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Equilibrium under a Fixed Money Growth Rate Rule | |

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Policy Mix B: Fixed Money Growth Rate and Zero Debt | |

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Equilibrium of the Real Economy with a Fixed Money Growth Rate | |

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Example of Indeterminate Equilibria in a Simple Economy | |

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Concluding Remarks | |

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Problems | |

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Applied Monetary Theory | |

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Introduction | |

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Monetary Facts: What There Is to Explain | |

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Simple Monetary Model: Using Equilibrium Theory to Explain the Facts | |

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Modeling the Exchange Process | |

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Formalizing the Exchange Technology | |

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How to Describe an Equilibrium | |

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How Do Equilibria Behave? | |

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Choosing Functional Forms | |

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What Do Equilibria Look Like? | |

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Alternative Views of the Money-Income Correlation? | |

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What Does All of This Have to Do with Sticky Prices? | |

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Concluding Remarks | |

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Problems | |

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Notes | |

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Bibliography | |

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Index | |