Yt = y + ^0 Et + Ii Et-1 + )-2 Et-2 + Ï-3 Et-3 + I4 Et-4 + U2t
where Yt = rate of growth in nominal GNP at time t
Mt = rate of growth in the money supply (M^ version) at time t
Et = rate of growth in full, or high, employment government expenditure at time t
In passing, note that (13.8.1) and (13.8.2) are examples of distributed lag models, a topic thoroughly discussed in Chapter 17. For the time being, simply note that the effect of a unit change in the money supply or government expenditure on GNP is distributed over a period of time and is not instantaneous.
Since a priori it may be difficult to decide between the two competing models, let us enmesh the two models as shown below:
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