A macro model with trade unions
The model features the usual IS and LM curves and a dynamic equation for changes in the government's budget deficit. The price level is assumed to be prefectly flexible so that the goods market always clears, whereas trade unions play an important role in wage determination. Two union models are considered, the monopoly union and the efficient bargain model. With such explicit recognition of union behavior, the way conventional policies operate is changed with differing outcome. Since there is full price flexibility and the goverment deficit disappears, the effectiveness of reflationary policies is not subject to the usual criticisms.
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