This paper considers a puzzle in growth theory from a Keynesian perspective. If neither wage and price adjustment nor monetary policy are effective at stimulating demand, no endogenous dynamic process exists to assure that demand grows fast enough to employ a growing labor force. Yet output grows persistently over long periods, occasionally reaching approximate full employment. We resolve this puzzle by invoking Harrod's instability results. Demand grows because it follows an explosive upward path that is ultimately limited by resource constraints. Downward demand instability is contained by introducing an autonomous component to aggregate demand.

Aggregate demand, instability, and growth

FERRI, Pietro Enrico;VARIATO, Anna Maria Grazia
2013-01-01

Abstract

This paper considers a puzzle in growth theory from a Keynesian perspective. If neither wage and price adjustment nor monetary policy are effective at stimulating demand, no endogenous dynamic process exists to assure that demand grows fast enough to employ a growing labor force. Yet output grows persistently over long periods, occasionally reaching approximate full employment. We resolve this puzzle by invoking Harrod's instability results. Demand grows because it follows an explosive upward path that is ultimately limited by resource constraints. Downward demand instability is contained by introducing an autonomous component to aggregate demand.
journal article - articolo
2013
Fazzari, Steven; Greenberg, Edward; Ferri, Pietro Enrico; Variato, Anna Maria Grazia
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/29455
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