ABSTRACT
Introduction In the last two chapters we have considered some determinants of the wage and price levels. As we pointed out earlier a complete analysis of inflationary process must integrate the determination of wages and prices with the asset and expenditure decisions made within the economy at large. The analysis is incomplete unless we are prepared to say that the income velocity of circulation is perfectly passive, adjusting appropriately to any rate of price increase (given the supply of nominal money) that the wage price mechanism in a narrow sense generates. Here we shall consider more closely the role of money in a developed economy which can be contrasted with the unique position of money in the exchange economy of Chapter II. In the following chapter we shall consider in more detail the income velocity of circulation and its relationship to the level of money income.
