Monetary Growth Theory under Perfect and Monopolistic Competitions

Masayuki Otaki, Masaoki Tamura

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Institute of Social Science, University of Tokyo, Tokyo, Japan.

DOI: 10.4236/tel.[phone]                

Abstract

This article analyzes the difference of properties of economic growth theory between perfect and monopolistic competition. Whether or not capital investment is constrained by effective demand is the crucial factor which characterizes economic growth theories in different degree of competition. Whenever each firm faces a downward sloping demand curve the location of which is determined by the strength of effective demand (i.e., the real GDP), its capital accumulation is inevitably constrained by effective demand. Thus, as far as business environment is kept unchanged, so is capital investment. However, when the good market is perfectly competitive, firms never perceive such demand constraint, thereby capital investment advancing autonomously independent of the phase of business cycle. An important macroeconomic implication of such a difference of the attitude toward capital investment is as follows. When an economy is in perfect competition, capital investment becomes an independent driving force of economic growth as Keynes considers, although it is subject to other independent expenditure (e.g., the government expenditure) and falls into a subsidiary component of effective demand otherwise.

Keywords

Sustainability of Fiscal Expenditure; Monetary Economic Growth Theory; Investment Theory under General Equilibrium

Conflicts of Interest

The authors declare no conflicts of interest.

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