Levy, A, A Note on Income Inequality and Macro-economic Volatility, Working Paper 00-08, Department of Economics, University of Wollongong, 2000. Income inequality may influence macro-economic variables by affecting the
money multiplier and the trade-off between inflation and output. In an AD-AS
model with imperfect foresight income inequality intensifies the volatility of
output and inflation rate by increasing the likelihood of oscillations as well as
their magnitude. Volatility is, however, moderated when income inequality
prolongs the business cycles.