ABSTRACT
Summarising the argument so far, a change in any one money price affects the individual’s real balances and substitution between this good and other goods. A change in all money prices alters the real value of initial money balances and therefore alters demands for goods. This is the real balance effect. Raise all money prices proportionally and the individual cannot buy the same total of real goods and real balances as before. Consider this as a sort of income effect, though it is more appropriate to call it the budget constraint effect because the equivalent to the income constraint in this model is a mixture of two things the initial stocks of goods and of money balances. At this point Patinkin — introduces the standard distinction between normal and inferior
