This paper models an economy which suffers from a coordination failure and lack of effective demand in the long run. Specifically, it shows that an input--output economy, with or without credit rationing, converges to a long-period growth path, but that this path is generally Pareto sub-optimal. Yet, although Keynesian problems extend to the long run, typical Keynesian solutions do not: the government seems generally incapable of sustaining growth by demand management measures. The question as to what the government can do to sustain growth is an open one.
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Volume (Year): 18 (2006) Issue (Month): 2 (April) Pages: 173-191 Download reference. The following formats are available: HTML
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