The equations for the price level (

*P*) and output (*N*) in the information equilibrium model have the forms:*N ~ (M/m0)ᵏ*

P ~ k (M/m0)ᵏ⁻¹

P ~ k (M/m0)ᵏ⁻¹

Which means that

*log N ~ k log M*

*log P ~ (k-1) log M*

*log N ~ k₁ log M*

*log P ~ k₂ log M*

So that the difference in the slopes in log-log space between the first relationship and the second relationship is

*k₁ -**k₂ =**k - (k - 1) = 1*(if measured over short time periods -- since*k*is changing). In the real world there are shocks that come from the changes in the labor supply (*E*) so that we should actually add in the slope of*log E ~ s log M*

So that

*k₁ + s - k₂ ≈ 1*

And guess what: it works! Non-ideal information transfer during recessions mean there should be deviations, and in general

*I(N) > I(M)*so*P < P**(the ideal price level) so we fall below the ideal value:
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