Capital and Investment: A Macroeconomic Approach

Douglas Purvis

Working Paper from Economics Department, Queen's University

Abstract: This paper contends that Witte's specification of the price of capital as determined by stock equilibrium considerations with investment arising as a "price taking" response, is myopic. An alternative model is presented where the price of capital is determined by simultaneous consideration of stock and flow equilibrium conditions. Investment affects capital's price, not through its effect on supply, but rather on demand, in a manner consistent with the modern theory of the firm facing adjustment costs. This extension of Witte's model is used to reconcile his results with those of Lerner and Keynes.

Pages: 27
Date: 1976
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Journal Article: Capital and Investment: A Macroeconomic Approach (1976)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:209

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