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Interest Rates and Aggregate Demand

In: Shaking the Invisible Hand

Author

Listed:
  • Basil John Moore

Abstract

Keynes argued that even perfectly competitive flexible prices and wages do not transform market economies into homeostatic systems that maintain dynamically stable equilibrium states without direct government intervention. Real world economies have no natural tendency to approach full employment equilibrium. Flexible wages and prices alone do not eliminate the destabilization produced by exogenuous shifts in animal spirits, as is the case with a single market. The demand for factors is dependent on profit expectations and reflects the dynamic relationship between wage rates and the prices of goods. Coordination between prices and wages is essential for the successful performance of all market economies since their ratio determines the real wage (W/p) and profits.

Suggested Citation

  • Basil John Moore, 2006. "Interest Rates and Aggregate Demand," Palgrave Macmillan Books, in: Shaking the Invisible Hand, chapter 14, pages 303-330, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-51213-9_14
    DOI: 10.1057/9780230512139_14
    as

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