The Investment Multiplier and the Aggregate Rate of Return: a Post-Keynesian View
This paper outlines a Post-Keynesian theory of the aggregate rate of return, which recognizes the change in aggregate profits brought about by the investment multiplier and the income and demand externalities to which it gives rise. The paper analyzes the effect of an increase in investment spending on the aggregate rate of return under three scenarios: 1) imperfect competition; 2) pure competition with diminishing returns; and 3) a full-employment economy where there is an increase in the investment-to-output ratio. Finally, the paper contends that the investment multiplier, which pushes the aggregate return above the private return, comes into play because there is no mechanism for pre-reconciling saving and investment plans before commitments are made.
Volume (Year): 6 (2001)
Issue (Month): 2 (September)
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