The Solow Growth Model with Keynesian Involuntary Unemployment
AbstractThe aim of this paper is to extend the Solow model in a way that permits to endogenize unemployment. Starting from a Neoclassical growth model, as the Solow model, we introduce a mechanism that allows us to determine the Keynesian unemployment, i.e. unemployment that is caused by the weakness of the aggregate demand. Using our base model, that works as a Keynesian demand-driven model, we find that an increase in the aggregate demand (due to a reduction in the saving rate or to an increase in public expenditures) reduces unemployment and stimulates the GDP. Then, we modify the investment function in order to take into account for the crowding-in/crowding-out effect on investments. This allows us to build a model which is between Neoclassical supply-driven models and Keynesian demand-driven models.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2013-01.
Date of creation: Jan 2013
Date of revision:
Growth models; Neoclassical models; Keynesian models; Involuntary unemployment;
Find related papers by JEL classification:
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
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