The Mulltipplieer PProccesss as MMarkket Excchannge ProocesssA CConttribbutiion to thee Miicroo Foounddatiion of Keyynessiann MaacrooecoonommicssGangg Goong#. Dept. of economics, Graduate Faculty, New School for Social Research, 65 Fifth Ave. New York, NY 10003. 093992newschool.edu.Feb., 119955The autthorr iss veery graatefful to Edwwardd Neell, Wiillii Seemmller, Duuncaan FFoleey, Davvid Collandder, Joohn Eattwelll, Pauul DDaviidsoon aand Willliaam MMilbbergg foor ttheiir ccommmentts aand sugggesstioons on thee eaarlyy drraftt off thhis papper.The Mulltipplieer PProccesss ass Maarkeet EExchhangge PProccesssA CConttribbutiion to thee Miicroo Foounddatiion of Keyynessiann MaacrooecoonommicssAbsttracctTradditiionaal eequiilibbriuum aanallysiis hhas beeen iincoorreectlly ffounndedd onnce an orrderringg isssuee iis cconccernned. Too ciircuumveent thiis pprobblemm, tthe auttonoomouus ddemaand, whhichh haas bbeenn miisseed iin ttradditiionaal mmicrroecconoomicc annalyysiss, hhas to be inttrodduceed iintoo thhe ssysttem as a sstarrtinng ppoinnt oof aa seequeencee off maarkeet eexchhangges. Foolloowinng tthiss diirecctioon, Keyynesss mulltipplieer aanallysiis ccan alsso bbe vviewwed as a ddesccripptioon oof tthe proocesss tthrooughh whhichh maarkeet eexchhangges aree geenerrateed. Furrtheer, thee Keeyneesiaan mmacrroecconoomicc reelattionn caan aalsoo bee prroveed wwithhin a mmicrro eeconnomiic cconttextt. (JELL D00, EE0)Thee coonseensuus iin mmacrroecconoomiccs tthatt prrevaaileed uuntiil tthe earrly 19770s fallterred beccausse oof ttwo flaaws, onne eempiiriccal andd thhe ootheer ttheooretticaal. . Thhe ttheooretticaal fflaww waas tthatt thhe cconssenssus vieew lleftt a chaasm bettweeen mmicrroecconoomicc prrincciplles andd maacrooecoonommic praactiice thaat wwas tooo grreatt too bee inntelllecctuaallyy saatissfyiing. (Mannkiww, 119900, ppp. 16447) I. IIntrroduuctiionLastt twwentty yyearrs hhavee wiitneesseed ttwo oppposiite ressearrch dirrecttionns. Onee, eentiitleed aas NNew Claassiicall, iis tto eexpllainn maacrooecoonommic pheenommenaa baasedd onn ann inndivviduual chooicee-thheorretiic fframmewoork of traadittionnal miccroeeconnomiics thhouggh tthe axiiom of rattionnal exppecttatiion is oftten adoopteed. Thee ottherr iss thhe aatteemptt too reeconnstrructt miicrooecoonommicss soo ass too puut KKeynnesiian maccro-anaalyssis on a ffirmmer fouundaatioon. Thiis ccateegorry iis nnow terrmedd Neew KKeynnesiian. Iss thhe chaasm sttilll leeft? Wee beelieeve (inndeeed mmanyy beelieeve) iit iis!. IIt iis sstilll nnot obvviouus wwhatt iss thhe mmicrro ffounndattionn off Keeyneesiaan mmacrroecconoomiccs.Thiss paaperr wiill preesennt mmy oown conntriibuttionn too thhis subbjecct. I bbeliievee thhe mmicrro ffounndattionn off Keeyneesiaan mmacrroecconoomiccs eexissts in thee coonteext of Keyynesss mulltipplieer pprinncipple. Sppeciificcallly, Keyynesss mulltipplieer aanallysiis ccan alsso bbe vviewwed as a ddesccripptioon oof tthe proocesss tthrooughh whhichh maarkeet eexchhangges aree geenerrateed. Thiis cconssideerattionn prroviidess uss a neww thheorretiicall frrameeworrk. Thee waay aan eeconnomyy opperaatess iss coomplleteely diffferrentt frrom thee waay ddesccribbed by traadittionnal equuiliibriium anaalyssis. Evven thee coonceept of equuiliibriium hass too bee chhangged. Yeet tthe neww thheorretiicall frrameeworrk pprovvideed hheree tuurnss ouut tto bbe mmuchh suuperriorr inn thhe ssensse tthatt maany myssterriess off trradiitioonall miicrooecoonommicss auutommatiicallly dissapppearr annd ffurttherr, tthe Keyynessiann maacrooecoonommic rellatiion is exaactlly sspeccifiied in a mmicrro eeconnomiic cconttextt.The papper is orgganiizedd ass foolloows. Fiirstt, II wiill raiise an isssue, whhichh I bellievve hhas lonng bbeenn suupprresssed in ecoonommic litteraaturre. Thiis iissuue iis ccrucciall, ffor thee thheorretiicall frrameeworrk oof ttradditiionaal eequiilibbriuum aanallysiis iis iincoorreectlly ffounndedd onnce thiis iissuue iis cconccernned. Myy owwn cconttribbutiion, hoowevver, iss exxacttly genneraatedd frrom my atttemppt tto ddeall wiith thiis iissuue. I tthenn exxposse hhow Keyynesss mulltipplieer aanallysiis ccan be unddersstoood aas aan aapprroacch tto ddesccribbe tthe genneraatioon pproccesss off maarkeet eexchhangges. Thheree arre ttwo wayys oof tthiss exxpossitiion: onne II caall thee foorwaard expposiitioon aand thee ottherr thhe bbackkwarrd eexpoosittionn. TThenn twwo pposssiblle ddoubbts willl bbe aaddrresssed, whhichh seeem to be, inn thhe vvieww off maany ecoonommistts, unssatiisfaactoory to thee muultiipliier theeoryy. AA maatheematticaal mmodeel wwilll foolloow tto sshoww hoow KKeynnesiian maccroee