Welfare Implications of Expansionary Fiscal and Monetary Policy in a Monetary Corn Model

This paper examines the welfare implications of expansionary macro-policy in the context of a monetary corn model. It shows that under the assumption of decreasing returns to scale, output growth makes the worker worse off and the entrepreneur better off, even when the growth is triggered by a dole to the worker. In the same spirit, a positive technology shock that results in higher output and higher employment results in an improvement in the worker’s welfare only if the magnitude of the shock is greater than a certain threshold. Expansionary monetary policy can result in a Pareto improvement via a decline in the interest rate. ∗ ∗I am grateful to Pradeep Dubey for many helpful comments. The usual disclaimer applies. 1