The Role of Demand in Macroeconomics
The Japanese Economic Review, 2003, vol. 54, issue 1, 1-27
I argue that the standard approach represented by real business cycle theory is misguided, and that a fundamentally different approach is necessary. The new approach, based on the method of statistical mechanics, leads us to a new concept of “equilibrium”. In equilibrium we must have a distribution of productivities rather than a unique level of productivity. We then find that demand plays a crucial role in the determination of the aggregate output, as the old Keynesian economics claims. I show that the demand constraint is important not only in short‐run but also in long‐run economic growth.
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