Monetary-disequilibrium Theory - Problems With Monetary-disequilibrium Theory

Problems With Monetary-disequilibrium Theory

1. According to Yeager, monetary-disequilibrium is a part of the monetarist tradition which states that "money matters the most" which cannot be true as in terms of economic analysis actors matters most.

2. The static definition of equilibrium at the heart of monetary-disequilibrium theory is flawed as he uses a very neoclassical definition on the macro-economic level i.e. he basically talks about constant price level.

3. Yeager does not take into consideration that business cycles start not just with monetary-disequilibrium but happens when that disequilibrium enters the market for lonable funds and produces disequilibrium there, such that the supply of lonable funds exceeds real savings.

4. As the name suggests the monetary-disequilibrium theory is a strictly monetary explanation of a set of economic phenomenon. It does not take into account the real economic factors like real savings or market processes that influence business cycles.

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