| Sumario: | A model of a monopolistically competitive representative firm was developed that maximizes its profits, subject to a demand function derived from a dynamic IS-LM aggregate demand function and cost conditions that reflect the outcome in an imperfect labor market. The conditions for the existence of a continuum of equilibria are derived and are contained in the demand and cost function. Given a number of different shocks—a transitory demand-side shock with linear cost condition, a transitory demand-side shock with a Phillips cost condition, a permanent demand-side shock with a linear marginal-cost function, and a permanent demand-side shock with a Phillips marginal-cost condition—the economy could exhibit different patterns of business cycles. These patterns and their respective scenarios are discussed.
|
|---|