ABSTRACT
This chapter provides a brief review of the attributes of both linear and nonlinear accelerator-multiplier models. It analyses the behavior of the accelerator model with the quantity of money constant. The chapter examines the result of combining a linear accelerator-multiplier model with a number of alternative monetary systems. Monetary changes are changes in either the velocity of circulation or the quantity of money. When the money supply increases at an independently given rate, the autonomous increase in the money supply is not necessarily equal to the difference between ex ante investment and ex ante saving. Government deficits financed by borrowing from banks result in an increase in the money supply without any corresponding increase in business debt. Some of the differences between the classical quantity theory of money and the Keynesian liquidity preference theory of money can be imputed to the way in which the banking system is assumed to operate.
