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Capacity Utilization, Obsolete Machines and Effective Demand

Sergio Parrinello

No CSWP9, Centro Sraffa Working Papers from Centro di Ricerche e Documentazione "Piero Sraffa"

Abstract: This paper is concerned with certain conditions under which an autonomous intended change in demand becomes effective. A simple model describes an economy, which initially is assumed in a steady state characterized by a given conventional wage rate, a uniform rate of profit and the existence of obsolete machines which are still used and receive quasi-rents, although not produced anymore. Small changes in effective demand, allowed by variable capacity utilization of fixed capital at given prices, are distinguished from large changes which affect the relative prices of commodities and the distribution of income. In both cases the steady state and the adjustment process towards a new steady state are compatible with unemployment; but large effective changes in demand require a higher flexibility of capacity utilization, compared with small changes. This occurs through a deviation of prices and income distribution from their normal values and a change in quasi rents, which make profitable a change in the types and the amounts of the obsolete machines in use. The distinction stressed in the paper is preliminary to the further distinction between impulse-wise and persistent changes in the rates of growth of demand, that is left as a research agenda.

Keywords: growth; Keynesian analysis; capacity utilization; obsolete capital goods; long and short period analysis (search for similar items in EconPapers)
JEL-codes: B50 E22 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hme and nep-mac
Date: 2014-12
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