The Age <strong>Saving</strong> Pr<strong>of</strong>ile 171 10. One could thus <strong>com</strong>pute discretionary saving by “blowing up” disposable in<strong>com</strong>e by 25 percent, and consumption by 30 percent. This adjustment reduces discretionary saving at all ages, but does not change the shape <strong>of</strong> the age-consumption pr<strong>of</strong>ile, and therefore that <strong>of</strong> the age-saving pr<strong>of</strong>ile. In particular, discretionary saving is again flat over the life cycle. 11. Initially, in Italy severance pay was intended to insure the employee against the risk <strong>of</strong> dismissal, but it gradually evolved into a form <strong>of</strong> deferred <strong>com</strong>pensation, irrespective <strong>of</strong> the cause <strong>of</strong> termination <strong>of</strong> employment. The employee is entitled to it whether he or she retires, is laid <strong>of</strong>f, or quits. 12. This latter study also presents flat age-saving pr<strong>of</strong>iles in Taiwan and Thailand, in which the amount <strong>of</strong> mandatory saving is much more limited. The evidence in these countries is therefore much less favorable to the LCH than in other developed countries. References Alessie, Rob, Annamaria Lusardi, and Arie Kapteyn, “<strong>Saving</strong> after retirement: evidence from three different surveys,” Labour Economics 6 (1999), 277–310. Alessie, Rob, Arie Kapteyn, and Frank Klijn, “Mandatory pensions and personal savings in the Netherlands,” Economist-Leiden 145 (1997), 291–324. Ando, Albert, Luigi Guiso, and Daniele Terlizzese, “Dissaving by the elderly, transfer motive and liquidity constraints,” in <strong>Saving</strong> and the Accumulation <strong>of</strong> Wealth. Essays on Italian Household and Government <strong>Saving</strong> Behavior, Albert Ando, Luigi Guiso and Ignazio Visco (eds). (Cambridge: Cambridge University Press, 1994.) Ando, Albert, and Arthur Kennickell, “How much (or little) life-cycle is there in micro data? The cases <strong>of</strong> the United States and Japan,” in Macroeconomic and Finance. Studies in Honor <strong>of</strong> Franco Modigliani, Rudiger Dornbusch, Stanley Fischer and James Bossons (eds). (Cambridge: MIT Press, 1987.) Attanasio, Orazio P., and Agar Brugiavini, “Social security and households’ saving,” Quarterly Journal <strong>of</strong> Economics 118 (2003), 1075–1120. Auerbach, Alan, J., Jagadeesh Gokhale, and Laurence J. Kotlik<strong>of</strong>f, “Generational accounts: a meaningful alternative to deficit accounting,” in Tax Policy and the Economy, vol. V, David Bradford (ed). (Chicago: University <strong>of</strong> Chicago Press, 1991.) Blinder, Alan S., Roger H. Gordon, and Donald E. Wise, “Social security, bequests and the life-cycle theory <strong>of</strong> saving: cross-sectional tests,” in The Determinants <strong>of</strong> National <strong>Saving</strong> and Wealth, Franco Modigliani and Richard Hemmings (eds). (London: Macmillan Press, 1983.) Brandolini, Andrea, and Luigi Cannari, “Methodological Appendix: the Bank <strong>of</strong> Italy’ Survey <strong>of</strong> Household In<strong>com</strong>e and Wealth,” in <strong>Saving</strong> and the Accumulation <strong>of</strong> Wealth. Essays on Italian Household and Government <strong>Saving</strong> Behavior, Albert Ando, Luigi Guiso and Ignazio Visco (eds). (Cambridge: Cambridge University Press, 1994.) D’Alessio, Giovanni, and Ivan Faiella, “I bilanci delle famiglie italiane nell’anno 2000,” Supplementi al Bollettino di Statistica 12, n. 6. (2002) Rome: Bank <strong>of</strong> Italy. Deaton, Angus, and Christina Paxson, “<strong>Saving</strong>, aging and growth in Taiwan,” in Studies in the Economics <strong>of</strong> Aging, David Wise (ed). (Chicago: University <strong>of</strong> Chicago Press, 1994.) Diamond, Peter A., and Jerry A. Hausman, “Individual retirement and savings behavior,” Journal <strong>of</strong> Public Economics 23 (1984), 81–114. Feldstein, Martin, “Social security and saving: the extended life-cycle theory,” American Economic Review 66 (1976), 77–87. Gale, William G., “The effects <strong>of</strong> pension wealth on household wealth: a reevaluation <strong>of</strong> theory and evidence,” Journal <strong>of</strong> Political Economy 106 (1998), 706–723.
172 The <strong>Life</strong>-Cycle <strong>Hypothesis</strong> Gale, William G., and John Sabelhaus, “Perspectives on the household saving rate,” Brookings Papers on Economic Activity n. 1 (1999), 181–224. Gokhale, Jagadeesh, Laurence J. Kotlik<strong>of</strong>f, and John Sabelhaus, “Understanding the postwar decline in US saving: a cohort analysis,” Brookings Papers on Economic Activity n. 1 (1996), 315–390. Guiso, Luigi, and Tullio Jappelli, “Intergenerational transfers, borrowing constraints and the timing <strong>of</strong> home ownership,” Journal <strong>of</strong> Money, Credit, and Banking 34 (2002), 315–339. Hayashi, Fumio, Albert Ando, and Richard Ferries, “<strong>Life</strong> cycle and bequest saving,” Journal <strong>of</strong> the Japanese and International Economy 2 (1988), 450–491. Hurd, Michael D., “<strong>Saving</strong>s <strong>of</strong> the elderly and desired bequests,” American Economic Review 77 (1987), 298–312. Hurd, Michael D., “Mortality risk and bequests,” Econometrica 57 (1989), 779–813. Hurd, Michael D., Daniel McFadden, and Angela Merrill, “Predictions <strong>of</strong> mortality among the elders,” in Themes in the Economics <strong>of</strong> Aging, David Wise (ed). (Chicago: University <strong>of</strong> Chicago Press, 2001.) Hurd, Michael D., and James P. Smith, “Anticipated and actual bequests,” in Themes in the Economics <strong>of</strong> Aging, David Wise (ed). (Chicago: University <strong>of</strong> Chicago Press, 2001.) Jappelli, Tullio, “Does social security reduce the accumulation <strong>of</strong> private wealth? Evidence from Italian survey data,” Ricerche Economiche 49 (1995), 1–31. Jappelli, Tullio, Mario Padula, and Renata Bottazzi, “Retirement expectations and pension reform,” CSEF Working Paper n. 92 (2003). King, Mervin A., and Louis Dycks-Mireaux, “Asset holdings and the life-cycle,” Economic Journal 92 (1982), 247–267. Miles, David, “Modeling the impact <strong>of</strong> demographic change upon the economy,” Economic Journal 109 (1999), 1–36. Modigliani, Franco, “<strong>Life</strong>-cycle, individual thrift, and the wealth <strong>of</strong> nations,” American Economic Review 76 (1986), 297–313. Modigliani, Franco, “The role <strong>of</strong> intergenerational transfers and life cycle saving in the accumulation <strong>of</strong> wealth,” Journal <strong>of</strong> Economic Perspectives 2 (1988), 15–40. Modigliani, Franco, and Tullio Jappelli, “Why has the Italian national saving rate declined?,” in Market and institutions in economic development, Salvatore Biasco, Alessandro Roncaglia, and Michele Salvati (eds). (London: Macmillan Press, 1990.) Munnell, Alicia, The effect <strong>of</strong> social security on personal saving. (Cambridge: Ballinger, 1974.) Paxson, Christina, “<strong>Saving</strong> and growth: evidence from micro data,” European Economic Review 40 (1996), 255–288. Poterba, James, “Introduction,” in International Comparison <strong>of</strong> Personal <strong>Saving</strong>, James Poterba (ed). (Chicago: The University <strong>of</strong> Chicago Press, 1994.) Rossi, Nicola, and Ignazio Visco, “National saving and social security in Italy,” Ricerche Economiche 49 (1995), 329–356. Sabelhaus, John, and Karen Pence, “Household saving in the 1990s: evidence from cross-sections <strong>of</strong> wealth surveys,” Review <strong>of</strong> In<strong>com</strong>e and Wealth 45 (1999), 435–454. Wolff, Edward N., “Inheritances and wealth inequality,” American Economic Review Papers and Proceedings 92 (2002), 260–264.
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THE COLLECTED PAPERS OF FRANCO MODI
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Franco Modigliani in 1992.
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© 2005 Massachusetts Institute of
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CONTENTS Preface Francesco Franco I
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PREFACE The essays collected in thi
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xii Introduction decades of the twe
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THE LIFE-CYCLE HYPOTHESIS I
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4 The Life-Cycle Hypothesis them. W
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6 The Life-Cycle Hypothesis which c
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8 The Life-Cycle Hypothesis extent
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10 The Life-Cycle Hypothesis Assump
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12 The Life-Cycle Hypothesis e dy d
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14 The Life-Cycle Hypothesis We wil
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16 The Life-Cycle Hypothesis The fi
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18 The Life-Cycle Hypothesis We fee
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20 The Life-Cycle Hypothesis P = y
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22 The Life-Cycle Hypothesis y y e
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24 The Life-Cycle Hypothesis consum
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26 The Life-Cycle Hypothesis as an
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28 The Life-Cycle Hypothesis It wil
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30 The Life-Cycle Hypothesis is one
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32 The Life-Cycle Hypothesis The re
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34 The Life-Cycle Hypothesis Unfort
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36 The Life-Cycle Hypothesis basis
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38 The Life-Cycle Hypothesis 14. Fo
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40 The Life-Cycle Hypothesis 33. It
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42 The Life-Cycle Hypothesis which
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44 The Life-Cycle Hypothesis assump
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2 THE “LIFE-CYCLE” HYPOTHESIS O
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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(11) I C 0.634 0.080 0.634 0.092 0.
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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The “Life-Cycle” Hypothesis of
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3 LONG-RUN IMPLICATIONS OF ALTERNAT
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Table 3.1 A. Effects of Government
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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Long-Run Implications of Alternativ
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4 RECENT DECLINES IN THE SAVINGS RA
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Table 4.1 (continued) Regression Va
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Recent Declines in the Savings Rate
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Table 4.2 (continued) First Differe
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Recent Declines in the Savings Rate
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Recent Declines in the Savings Rate
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Recent Declines in the Savings Rate
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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An Economists’ Manifesto on Unemp
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240 Unemployment and Monetary Polic
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242 Unemployment and Monetary Polic
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244 Unemployment and Monetary Polic
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246 Unemployment and Monetary Polic
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248 Unemployment and Monetary Polic
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250 Unemployment and Monetary Polic
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252 Unemployment and Monetary Polic
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254 Unemployment and Monetary Polic
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256 Unemployment and Monetary Polic
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258 Unemployment and Monetary Polic
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260 Unemployment and Monetary Polic
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262 Unemployment and Monetary Polic
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264 Unemployment and Monetary Polic
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266 Unemployment and Monetary Polic
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268 Unemployment and Monetary Polic
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270 Unemployment and Monetary Polic
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272 Unemployment and Monetary Polic
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274 Unemployment and Monetary Polic
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276 Unemployment and Monetary Polic
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278 Unemployment and Monetary Polic
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280 Unemployment and Monetary Polic
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11 LONG-TERM FINANCING IN AN INFLAT
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Long-Term Financing in an Inflation
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Long-Term Financing in an Inflation
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12 RISK-ADJUSTED PERFORMANCE: HOW T
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Risk-Adjusted Performance 291 portf
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Risk-Adjusted Performance 293 sugge
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Risk-Adjusted Performance 295 Nonet
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Risk-Adjusted Performance 297 relat
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Risk-Adjusted Performance 299 On th
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Risk-Adjusted Performance 301 Nonet
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Risk-Adjusted Performance 303 perfo
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13 THE RULES OF THE GAME AND THE DE
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The Rules of the Game and the Devel
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The Rules of the Game and the Devel
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The Rules of the Game and the Devel
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The Rules of the Game and the Devel
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The Rules of the Game and the Devel
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The Rules of the Game and the Devel
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14 EMERGING ISSUES IN THE WORLD ECO
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Emerging Issues on the World Econom
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Emerging Issues on the World Econom
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Emerging Issues on the World Econom
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328 Miscellanea mammoth unemploymen
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330 Miscellanea important one at th
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332 Miscellanea M M s M d M d Figur
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334 Miscellanea the flexibility of
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336 Miscellanea Table 15.1 (continu
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338 Miscellanea Table 15.2 Unemploy
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340 Miscellanea Table 15.2 (continu
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342 Miscellanea are equal: one must
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344 Miscellanea For the purpose of
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346 Miscellanea IV.4 The Saving—I
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348 Miscellanea corresponding axis
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350 Miscellanea understood however
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352 Miscellanea creates an excess s
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354 Miscellanea short of totalitari
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356 Miscellanea VI.5 The Role of Fi
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358 Miscellanea flexible nominal wa
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INTERVIEW IV
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364 Interview at Modigliani’s vac
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366 Interview Solow: Now, with Mars
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368 Interview in employment. When t
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370 Interview interest elasticity o
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372 Interview industries such as ag
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374 Interview The theorem, which by
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376 Interview governmental finance
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378 Interview Solow: You had a majo
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380 Interview consequences of “Pe
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382 Interview century, to below 6 p
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INDEX Accelerator effect, 221 Accou
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Index 387 Coefficients of the aggre
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Index 389 Equilibrium market, 328-3
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Index 391 cash, 142, 143 in China,
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Index 393 and open economy, 358 and
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Index 395 Monetary policy argument
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Index 397 Real wages. See Wages, re
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Index 399 Tanzania, income and savi
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Index 401 “Wedge” between pay a