Loanable Funds theory vs Liquidity Preference theory: The Validity of Walras’ Law in a Monetary Productive Economy with Bonds

Abstract

[enter AbsIn a recent paper Túñez (2016) has reviewed the validity of Walras’Law for a Monetary Exchange Economy using a Non-Compensatory Disequilibrium Framework (NCDF). This paper will apply the same theoretical Framework to a Monetary Productive Economy with Bonds to demonstrate that, conflicting with Maurer’s (2009) and Patinkin’s (1965) models, general excess supplies might exist, i.e., Keynes’ thesis of Unemployment Equilibrium is hence a valid theoretical possibility as Walras’ Law does not always hold. The paper will also examine the debate between the loanable funds vs liquidity preference theories using the NCDFtract Body]