Effective Demand and Growth: An Analysis of the Alternative Closures of Keynesian Models

Nelson Henrique Barbosa-Filho ()

No 2001-05, SCEPA Working Papers from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

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.

Keywords: growth; effective demand; Keynesian; demand-led (search for similar items in EconPapers)
JEL-codes: E12 O41 B22 B50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-pke
Date: 2001-12
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Persistent link: http://EconPapers.repec.org/RePEc:epa:cepawp:2001-05

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