A Keynesian Monetary Growth Model Under Monopolistic Competition: Is Economic Growth Sustainable Without Government Help?

Masayuki Otaki

Chapter 13 in Keynesian Economics and Price Theory, 2015, pp 159-173 from Springer

Abstract: Abstract Almost every developed country experiences serious enlargement of the scale of government, specifically in the expansion of fiscal deficit fiscal deficit s. This chapter outlines why such a phenomenon is so prominent, based on a Keynesian growth model entirely compatible with standard neoclassical microeconomics. Cost-minimizing investment plays a key role. Whenever the demand that each firm faces is constraint by effective demand effective demand (cases include the situation of monopolistic competition monopolistic competition ), a firm strives to raise the productivity of labor and save its production costs. Since such a process continues only until costs are completely minimized, human capital investment is gradually reduced as the improvement in the production process advances. Thus, this form of investment cannot become a driving force for economic growth. As a result, and differing from the case for perfect competition analyzed in Chap. 12, ceaseless expansionary aggregate demand policy is inevitably required when seeking sustainable economic growth under monopolistic competition.

Keywords: Keynesian growth model; Scale of government; Fiscal deficits; Cost-minimizing investment (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-4-431-55345-8_13

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DOI: 10.1007/978-4-431-55345-8_13

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