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A post-Keynesian model of output, employment and monetary demand

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  • Rosaria Rita Canale

Abstract

This paper presents a simple model based on three broad Post-Keynesian hypotheses: (1) the economic process develops over time; (2) money is endogenous; and (3) producers are price setters. To make the analysis easier we also assume (4) that firms are vertically integrated. Producers assess the expected demand and ask banks for credit in order to start production; banks create credit at the request of producers to finance the wage bill; workers buy goods sold by firms; firms must repay banks the amount borrowed plus interest and earn a target rate of profit. Since firms have created only as much purchasing power as they have advanced to workers in the form of the wage fund, equilibrium requires that there is an amount of autonomous monetary demand equal to profits and interest. Furthermore, in order to make the value of supply equal to the value of effective demand, firms will employ the number of workers necessary to create the purchasing power which, when added to the anticipated autonomous demand, enables all costs to be covered and the planned rate of profits to be attained.

Suggested Citation

  • Rosaria Rita Canale, 2004. "A post-Keynesian model of output, employment and monetary demand," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 347-360.
    • Handle: RePEc:taf:revpoe:v:16:y:2004:i:3:p:347-360
    DOI: 10.1080/0953825042000225634
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    Cited by:

    1. Molly Scott Cato, 2014. "From resilient regions to bioregions: An exploration of green post-Keynesianism," Working Papers PKWP1407, Post Keynesian Economics Society (PKES).

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