ABSTRACT
The final version of the synthesis model includes the wealth effect. It differs from the real balance effect model in Section 6.1 in an important respect. In that model money was the only asset. Once the demand for money is interest elastic, the model includes bonds. The inclusion of bonds as part of wealth is logically necessary, not arbitrary. If by whatever theoretical argument the demand for money is interest elastic, then there are bonds in the system, and these bonds are part of wealth. If the demand for money is not interest elastic, then we return to the naive “classical” model of Chapter 5 or the real balance effect model of Chapter 6.
