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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. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2001-05, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:2001-05
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    File URL: http://www.economicpolicyresearch.org/scepa/publications/workingpapers/2002/cepa200105.pdf
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. A. P. Thirlwall, 1983. "A Plain Man’s Guide to Kaldor’s Growth Laws," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 5(3), pages 345-358, March.
    3. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    4. 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.
    5. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    6. Rowthorn, R E, 1975. "What Remains of Kaldor's Law?," Economic Journal, Royal Economic Society, vol. 85(337), pages 10-19, March.
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    Cited by:

    1. Florencia Médici, 2011. "A Cointegration Analysis on the Principle of Effective Demand in Argentina (1980-2007)," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(61-62), pages 103-137, January -.

    More about this item

    Keywords

    growth; effective demand; Keynesian; demand-led;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • 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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