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

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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.

Suggested Citation

  • Nelson H. Barbosa Filho, 2001. "Effective Demand and Growth: An Analysis of the Alternative Closures of Keynesian Models," SCEPA working paper series. 2001-05, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2001-05
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    References listed on IDEAS

    as
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    5. J. S. L. McCombie & A. P. Thirlwall, 1994. "Economic Growth and the Balance-of-Payments Constraint," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-23121-8, September.
    6. John S. L. McCombie, 1983. "Kaldor's Laws in Retrospect," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(3), pages 414-429, April.
    7. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    8. Wynne Godley, "undated". "Drowning In Debt," Economics Policy Note Archive 00-6, Levy Economics Institute.
    9. 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.
    10. Rowthorn, R E, 1975. "What Remains of Kaldor's Law?," Economic Journal, Royal Economic Society, vol. 85(337), pages 10-19, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    growth; effective demand; Keynesian; demand-led;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • O41 - Economic Development, Innovation, 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

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