A Keynesian Endogenous Growth Theory with a Rigorous Microeconomic Foundation

DOI: 10.4236/tel.2012.24067   PDF   HTML     3,083 Downloads   5,143 Views   Citations

Abstract

Extending the effective demand theory developed by Otaki [1,2], we construct a demand-driven endogenous growth theory with a rigorous microeconomic foundation. An accelerator-principle investment function is derived by the intertemporal maximization behavior of monopolistic competitive employers. Under this investment function, an economy endogenously begins to expand even if the stability condition for goods markets is satisfied. Three factors determine the equilibrium growth rate: the degree of monopoly (the inverse of the price elasticity of each good) η﹣1, the marginal propensity to saving s, and the Mashallian k that can be manipulated by the government and is denoted by κ. The higher values of η﹣1 and s, and the lower value of κ , the more rapidly the economy expands.

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M. Otaki, "A Keynesian Endogenous Growth Theory with a Rigorous Microeconomic Foundation," Theoretical Economics Letters, Vol. 2 No. 4, 2012, pp. 365-368. doi: 10.4236/tel.2012.24067.

Conflicts of Interest

The authors declare no conflicts of interest.

References

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[8] M. Otaki, “A Pure Theory of Aggregate Price Determination,” Theoretical Economics Letters, Vol. 1, No, 3, 2011, pp. 122-128.

  
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