Debt, Aggregate Demand, and the Business Cycle

Thomas Palley

Chapter 12 in Post Keynesian Economics, 1996, pp 201-215 from Palgrave Macmillan

Abstract: Abstract The importance of debt and credit have been evident throughout much of this book. Chapter 4 showed how the presence of inside debt potentially undermined the ability of price level reductions to increase aggregate demand. The importance of credit was also evident in the discussion of the money supply in Chapter 7, and it reappeared as an important element in the theory of endogenous finance that was developed in Chapter 8. Thus far, the treatment of credit has been restricted to a static context, and this has meant that the aggregate demand effects of debt have been restricted to its deflationary “stock” effects. However, issuance of new debt can have expansionary “flow” effects on aggregate demand. This chapter combines these stock-flow aggregate demand effects of debt within the context of a model of the business cycle.

Keywords: Business Cycle; Real Interest Rate; Aggregate Demand; Trade Credit; Debt Service (search for similar items in EconPapers)
Date: 1996
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DOI: 10.1057/9780230374126_12

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