In the neoclassical growth theory, higher saving rate gives rise to higher output per capita. However, in the Keynesian model, higher saving rate causes lower consumption, which may lead to a recession. Students may ask, “Should we save or should we consume?” In most of the macroeconomics textbooks, economic growth and Keynesian economics are taught in separate, sometimes unsequential, chapters. The connection between the short run and the long run is not apparent. The author builds a bridge between the neoclassical growth theory and the Keynesian model. He links the Solow diagram and the IS-LM curves and depicts the short-run to long-run transition of the economy after changes in saving and other macroeconomic policies.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number
2006_28.
Find related papers by JEL classification: A2 - General Economics and Teaching - - Economic Education and Teaching of Economics E1 - Macroeconomics and Monetary Economics - - General Aggregative Models E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: