Economics · Macroeconomics
Match the effect with its transmission mechanism: (P) Keynes Effect (Q) Pigou Effect (Wealth Effect) (R) Real Balance Effect (Patinkin) (S) Money Illusion
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- 1P → Pigou 1943; Q → Patinkin 1956; R → Keynes 1936; S → Fisher 1928
- 2P → Real M/P↑ → APC↑; Q → i↓ → I↑ → IS shift; R → Price↓ → Savings↓; S → MPC=1 for transitory income
- 3P → Price↓ → Real Wealth↑ → C↑; Q → Price↓ → Real M/P↑ → i↓ → I↑; R → Nominal M rise → Real M unchanged; S → APC rises when income falls
- 4P → Price↓ → Real M/P↑ → i↓ → I↑ → Y↑; Q → Price↓ → Real Wealth↑ → C↑ → IS shifts right; R → M/P↑ → demand for goods↑ via real balances in demand function; S → Mistaking nominal wage rise for real wage rise✓
Correct answer
P → Price↓ → Real M/P↑ → i↓ → I↑ → Y↑; Q → Price↓ → Real Wealth↑ → C↑ → IS shifts right; R → M/P↑ → demand for goods↑ via real balances in demand function; S → Mistaking nominal wage rise for real wage rise
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