Answer to Question #185380 in Macroeconomics for Bharti

Question

Distinguish between the inside and outside money which of this is relevant to the pigou effect and why?

Answer 1

Inside money refers to the funds unbacked or back by an asset that is not in zero net supply in a private sector. On the other hand, inside money refers to the asset that represents private credit circulating in the economy as a medium of exchange. Inside money is relevant to the Pigou effect, which refers to the relationship between consumption, wealth, employment, and output during periods of deflation.