To Save or To Consume: Linking Growth Theory to with Keynesian Model
In the neoclassical growth theory, higher saving rate gives rise to higher output per capita. However, in the Keynesian model, higher saving rate causes lower consumption, which may lead to a recession. Students may ask, “Should we save or should we consume?” In most of the macroeconomics textbooks, economic growth and Keynesian economics are taught in separate, sometimes unsequential, chapters. The connection between the short run and the long run is not apparent. The author builds a bridge between the neoclassical growth theory and the Keynesian model. He links the Solow diagram and the IS-LM curves and depicts the short-run to long-run transition of the economy after changes in saving and other macroeconomic policies.
|Date of creation:||29 Nov 2006|
|Date of revision:|
|Contact details of provider:|| Postal: 221 Burwood Highway, Burwood 3125|
Phone: 61 3 9244 3815
Web page: http://www.deakin.edu.au/buslaw/aef/index.php
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Solow, Robert M, 1997. "Is There a Core of Usable Macroeconomics We Should All Believe In?," American Economic Review, American Economic Association, vol. 87(2), pages 230-32, May.
- S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
- Heijdra, Ben J., 2009. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 2, number 9780199210695, July.
When requesting a correction, please mention this item's handle: RePEc:dkn:econwp:eco_2006_28. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr Xueli Tang)
If references are entirely missing, you can add them using this form.