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The Rigid Central Planning System M
Wage Reform under Price Control
aggregate demand aggregate supply allows profitable firms analysis assume average household black market activity black market transactions budget deficit budget is balanced cash—in—advance constraint central bank centrally planned economy consumption cover their wage demand for money dynamic equilibrium economy converges equilibrium exists firms of type government budget grow without bounds household money balances household welfare household's demand hyperinflation individual household initial cash balances initial money balance involuntary money holdings irrational price system leisure Lemma loss—making firms macroeconomic stability marginal utility monetary overhang money printing money supply nonproductive black market official prices Osband period t-0 price decontrol price liberalization price reform profits of type queuing rigid centrally planned rigid wage control savings Section shadow prices shoppers shops shortage economy shortage rents soft budget constraints steady steady—state equilibrium structural imbalances type x firms utility level w<X+Y w>X+Y wage income wage increase wage pressure wage reform wages and prices xt and yt