Following the previous section, which examined the simplified model of an economy with only "short lending," this section examines the case in which all lending is "long lending," i.e. with securities that pay a perpetual stream of payments where each payment's amount corresponds to the interest rate at the time of the payment. There are, as before, n different prices, where one "price" is for the interest rate, and the other n - 1 prices are for the goods and services (and one of the goods plays the role of money).
As before, there are n + 1 equations that match supply and demand for the n - 1 goods and services, while also determining the supply and demand for money and determining the interest rate. Again, as before, one of these equations is redundant and can be eliminated. Because the process is somewhat different than in the previous model, the text spells out the details. Where the discussion in the previous section considered the possibility of an individual lending out money, the current model instead describes an individual as acquiring a security (which then pays the individual indefinitely). Therefore the following equation holds for each private individual:
Acquisition of cash = Receipts (including interest from securities owned)
- Expenditures - Value of securities acquired
For firms, instead of considering the possibility of repayment of loans, the long lending model considers the payment of interest on debts. Thus for a firm we have the following:
Acquisition of cash = Value of output - Value of Input
- Interest on debts - Dividends
+Value of securities issued (or sold)
(1) If demand equals supply in the output market, then
Net Expenditures by private persons = Value of net output.
(2) If demand equals supply in the input market, then
Net Receipts by private persons = Value of net input + Dividends + Interest payments
(3) If demand equals supply in the securities market, then
Value of securities bought = Value of securities sold
