Interest Rates and Aggregate Demand

Basil John Moore

Chapter 14 in Shaking the Invisible Hand, 2006, pp 303-330 from Palgrave Macmillan

Abstract: 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.

Keywords: Interest Rate; Monetary Policy; Central Bank; Real Interest Rate; Aggregate Demand (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-51213-9_14

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DOI: 10.1057/9780230512139_14

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