The Twin Circuits: Aggregate Demand and the Expenditure Multiplier in a Monetary Economy

Abstract

This paper seeks to expand the theory of aggregate demand so as to take account of the monetary nature of exchange. The economy is represented in terms of twin circuits of income generation and financial asset transacting. Money is not extinguished when spent, but instead partakes in these twin circuits of exchange. Money embodies potential purchasing power, and the extent to which it generates spending in goods markets is affected by agents' liquidity preferences.