Effective Demand and Growth: An Analysis of the Alternative Closures of Keynesian Models

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Effective Demand and Growth: An Analysis of the Alternative Closures of Keynesian Models

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Nelson H. Barbosa Filho (CEPA, New School University)

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Nelson Henrique Barbosa-Filho

Abstract

This paper presents a one-sector model where investment and autonomous expenditures determine the growth rate of income. The analysis starts with the dynamics of demand-led growth and the interaction between investment and autonomous expenditures. Since by definition investment determines the growth rate of capital, the paper uses the relation between demand-led growth, multifactor productivity growth, and labor-force growth to analyze the alternative closures of the supply side. After discussing how partially endogenous labor force and multifactor productivity may relax supply constraints, the paper shows how changes in the average propensity to save may accommodate investment and autonomous expenditures when the economy reaches its maximum growth rate. Since nothing prevents the functional distribution of income from changing before that happens, the paper concludes with a two-species model (for the labor share of income and the income-capital ratio) to illustrate how demand-led growth can generate business fluctuations while remaining below supply constraints.

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Paper provided by Schwartz Center for Economic Policy Analysis (SCEPA), The New School in its series SCEPA Working Papers with number 2001-05.

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Length: 26 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:epa:cepawp:2001-05

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Find related papers by JEL classification:
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-09-21 (All new papers)
NEP-DEV-2002-09-21 (Development)
NEP-PKE-2002-09-21 (Post Keynesian Economics)

References listed on IDEAS
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Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October. [Downloadable!] (restricted)
Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March. [Downloadable!] (restricted)
Wynne Godley, 1999. "Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World," Economics Strategic Analysis Archive 99-10, Levy Economics Institute, The. [Downloadable!]
Rowthorn, R E, 1975. "What Remains of Kaldor's Law?," Economic Journal, Royal Economic Society, vol. 85(337), pages 10-19, March. [Downloadable!] (restricted)

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