This paper incorporates inside nominal debt into a Keynesian general disequilibrium model. It shows how nominal wage adjustment may be insufficient to restore Walrasian equilibrium. Nominal wage reductions lower aggregate demand by increasing debt service burdens. This aggravates Keynesian...

This paper presents a theoretical model of consumption behavior that synthesizes the seminal contributions of Keynes (1936), Duesenberry (1948), and Friedman (1956). The model is labeled a "relative permanent income" theory of consumption. The key feature is that the share of permanent income...