scholarly journals Introduction: the importance of aggregate demand for full employment and rising living standards

2020 ◽  
pp. 1-9
Author(s):  
Brian K. MacLean ◽  
Hassan Bougrine ◽  
Louis-Philippe Rochon
Keyword(s):  
Full Employment ◽  
Aggregate Demand ◽  
Living Standards

Can Stimulus without Debt Combat Secular Stagnation?

2018 ◽  
Author(s):  
Laurence Seidman
Keyword(s):  
Slow Growth ◽  
Full Employment ◽  
Aggregate Demand ◽  
Secular Stagnation ◽  
Potential Output ◽  
Goods And Services ◽  
Actual Output ◽  
Debt Policy

Two possible sources of “secular stagnation” must be distinguished. The first source is chronically insufficient aggregate demand for goods and services; insufficient demand is demand that is less than the potential output of the economy. The second source is slow growth in the potential output of the economy. If secular stagnation occurs due to chronically insufficient demand, a stimulus-without-debt policy that is applied as long as demand would otherwise be insufficient can keep actual output equal to potential output and therefore can achieve and maintain full employment (because potential output is defined as the output that would be produced in a given year if labor is fully employed in that year); every year, the level of output and employment would be equal to potential output instead of being below potential output.

scholarly journals An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

2020 ◽  
Vol 15 (4) ◽  
pp. 953-998 ◽  
Author(s):  
Ichiro Takahashi ◽  
Isamu Okada
Keyword(s):  
Banking Sector ◽  
Full Employment ◽  
Aggregate Demand ◽  
Real Wages ◽  
Fractional Reserve Banking ◽  
Investment Funds ◽  
Wage Stickiness ◽  
Long Run ◽  
Short Run ◽  
Reserve Banking

Abstract Economists have investigated how price–wage rigidity influences macroeconomic stability. A widely accepted view asserts that increased rigidity destabilizes an economy by requiring a larger quantity adjustment. In contrast, the Old Keynesian view regards nominal rigidity as a stabilizing factor, because it reduces fluctuations in income and thus aggregate demand. To examine whether price–wage stickiness is stabilizing or destabilizing, we build an agent-based Wicksell–Keynes macroeconomic model, which is completely closed and absolutely free from any external shocks, including policy interventions. In the model, firms setting prices and wages make both employment and investment decisions under demand constraints, while a fractional-reserve banking sector sets the interest rate and provides the firms with investment funds. As investment involves a gestation period, it is conducive to overproduction, thereby causing alternate seller’s and buyer’s markets. In the baseline simulation, a stable economy emerges with short-run business cycles and long-run fluctuations. One unique feature of the economy is its remarkable resilience: When afflicted by persistent deflation, it often manages to reverse the deflationary spiral and get back on a growth track, ultimately achieving full or nearly full employment. The virtual experiments demonstrate that prices and wages must both be moderately rigid to ensure long-run stability. The key stabilizing mechanism is a recurring demand-sufficient economy, in which firms are allowed to increase employment while simultaneously cutting real wages.

scholarly journals An Econometric Analysis of Price Behaviour in Pakistan

1973 ◽  
Vol 12 (4) ◽  
pp. 375-392 ◽  
Author(s):  
B. A. Azhar
Keyword(s):  
Price Level ◽  
Full Employment ◽  
Aggregate Demand ◽  
Labour Unions ◽  
Explanatory Variables ◽  
Price Increases ◽  
Demand Pull ◽  
Vast Literature ◽  
The Cost ◽  
Structural Theories

In this paper an attempt has been made to explore the major causes of price level changes in West Pakistan during the past thirteen years and to deter¬mine their relative importance in explaining the price fluctuations. A supple¬mentary object of the paper is to develop a predictive mechanism which may be used to forecast the response of price level to changes in the explanatory variables used in the regression model. There is vast literature on inflation theory [3] but not so much on quanti¬tative evidence. Broadly, there are three groups of theories of inflation: the demand pull theories, which state that inflationary pressures result from aggregate demand exceeding aggregate supply at full employment; the cost-push theories, which stress the producers' power to pass on cost increases in higher prices even when demand remains unchanged. The third group of theories, which take a mid-way position between the demand-pull and the cost-push theories, are a number of structural theories, notably those associated with the names of Ackley, Eckstein, and Schultze [1,5,11]. According to Ackley, inflation results from mark-up of prices. He considers the price policies of the firms and the wage policies of the labour unions to be responsible for inflation. He puts forward the hypothesis that mark ups used by business in setting prices and those applied by the labour unions to their cost of living for getting higher wages tend to rise in an inflationary situation which results in pyramiding of costs. Professor Otto Eckstein advances the hypothesis that inflation may be caused by price increases in certain bottleneck industries even when there is no over-all excess demand in the economy.

Involuntary Unemployment as a Nash Equilibrium and Fiscal Policy for Full Employment

2021 ◽  
pp. 2150018
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Nash Equilibrium ◽  
Fiscal Policy ◽  
Budget Deficit ◽  
Full Employment ◽  
Aggregate Demand ◽  
Fiscal Policies ◽  
Budget Deficits ◽  
Overlapping Generations Model ◽  
Involuntary Unemployment ◽  
Game Theoretic

This study aimed to provide a game-theoretic interpretation of the analyses of involuntary unemployment by deficiency of aggregate demand and fiscal policy to achieve full employment using an overlapping generations model. We showed that involuntary unemployment is in a Nash equilibrium of a game with a firm and consumers. Moreover, we showed that full employment can be achieved through fiscal policies that create budget deficits in recessionary conditions with involuntary unemployment. Once full employment is achieved, it can be sustained without a budget deficit.

Post-Keynesian Macroeconomic Models

2014 ◽  
pp. 61-95
Keyword(s):  
Business Cycle ◽  
Financial Markets ◽  
Full Employment ◽  
Aggregate Demand ◽  
Financial Sector ◽  
Economic Equilibrium ◽  
Productive Capacity ◽  
Productivity Analysis ◽  
Macroeconomic Models ◽  
The Business Cycle

The idea that the financial sector can amplify the business cycle dates back to the early 1900s. The main focus of finance and growth literature is the way in which financial markets influence the main drivers of growth (such as investment and savings) and the fluctuations of business cycle indirectly, via their impact on the firms and consumers. Keynesians and post-Keynesians believe that aggregate demand is responsible for achieving full employment and economic equilibrium, and investment is placed at the centre stage to stimulate aggregate demand. Classical theorists favour equilibrium with equalised profit rates, process of production, and full utilisation of productive capacity. Accordingly, this chapter extensively discusses the post-Keynesian literature in investment and productivity analysis, and their approaches to macroeconomic modelling.

scholarly journals التغيرات البنيوية في الاقتصاد العراقي

2020 ◽  
Vol 1 (2) ◽  
pp. 153-163
Author(s):  
عبد الكريم عبد
Keyword(s):  
Economic Growth ◽  
Foreign Trade ◽  
Labor Force ◽  
Structural Changes ◽  
Full Employment ◽  
Aggregate Demand ◽  
Point Of View ◽  
Total Consumption ◽  
Strategic Objective ◽  
Quantitative Changes

Any country that is trying to achieve basic economic goals in the forefront of growth and stability and full employment. Economic growth must include quantitative, qualitative and sustained changes in macroeconomic structure over several decades. Because Iraq has enormous human and natural resources, foremost of which is oil, the Iraqi economy has not undergone significant qualitative and quantitative changes in favor of economic growth as a strategic objective, but in a single economy that relies heavily on oil resources.In order to examine the changes in the structure of the Iraqi economy, these changes in the structure of the population were examined from a biological and a literal point of view. Structural changes were also examined in the sectoral distribution of the GDP, the sectoral distribution of the labor force and the structural changes in foreign trade. Changes in population structure were not positive and did not contribute to the desired economic growth. The sectoral distribution of GDP and the sectoral distribution of the labor force was also not positive for achieving major economic objectives. The analysis of changes in the structure of foreign trade, resource use and the structure of aggregate demand in the Iraqi economy shows a decline in the contribution of capital formation in GDP, which is the main driver of economic growth against the growth of the share of total consumption and private sector exports excluding the oil sector.The study concluded that the imbalance in the structure of the Iraqi economy has continued as a result of a number of problems that began in the 1980s as a result of the war with Iran and the ensuing economic siege throughout the 1990s, as well as the instability of the security and political situation since 2003.

Europe’s Real Economic Challenges

2017 ◽  
Author(s):  
Martin Sandbu
Keyword(s):  
Capital Flows ◽  
Demand Management ◽  
Aggregate Demand ◽  
Balance Of Payments ◽  
Living Standards ◽  
Real Economy ◽  
Single Currency ◽  
Long Run ◽  
National Borders

This chapter defines the three main economic challenges of the members of the single currency. The first is to deal better with balance-of-payments crises — both finish the job of fixing the financial fragmentation from 2010–11 and safeguard against future ones. This is a financial and monetary task, one of ensuring that capital flows across national borders in an orderly and efficient way. The second challenge is a ‘real economy’ task of ensuring that each economy's resources are fully employed: the classic macroeconomic problem of aggregate demand management. Both of these tasks are largely about undoing self-inflicted errors. Finally, the long-run challenge is to make labour and capital as productive as they can be, which is what sustains long-term improvement in living standards.

scholarly journals THE NATURAL INTEREST RATE FALLACY: WHY NEGATIVE INTEREST RATE POLICY MAY WORSEN KEYNESIAN UNEMPLOYMENT?

2018 ◽  
Vol 77 (304) ◽  
pp. 7 ◽  
Author(s):  
Thomas I. Palley
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Full Employment ◽  
Aggregate Demand ◽  
Natural Rate ◽  
Policy Assessment ◽  
Price Inflation ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Negative Interest Rate Policy

<p><strong>ABSTRACT</strong></p><p><strong></strong>Negative interest rate policy (NIRP) has quickly become a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian classical economic logic that asserts there is a natural rate of interest which can ensure full employment. That pre-Keynesian logic has been augmented by zero lower bound economics which claims the natural rate may be negative in times of severe demand shortage, so that policy must deliver it since the market cannot. In contrast, Keynes argued investment could become saturated so lower interest rates cannot increase aggregate demand (AD) and no natural interest rate exists. Regarding policy assessment, NIRP turns a blind eye to the possibility that negative interest rates may reduce AD, cause financial fragility, create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow, promote currency wars that undermine the international economy, and foster a political economy that spawn’s toxic politics. Worst of all, NIRP maintains and encourages the flawed model of growth, based on debt and asset price inflation, which has already done such harm.</p><p><strong><br /></strong></p><p><strong>LA FALACIA DE LA TASA DE INTERÉS NATURAL: ¿POR QUÉ LA POLÍTICA DE TASAS DE INTERÉS NEGATIVAS PUEDE EMPEORAR EL DESEMPLEO KEYNESIANO?</strong></p><p> </p><p><strong>RESUMEN</strong></p><p><strong></strong>En la economía convencional ha cristalizado de forma rápida un consenso en torno de la política de tasas de interés negativas (PTIN). En este artículo argumento que este consenso es erróneo y peligroso, dado que descansa en una teoría equivocada y en una evaluación de política defectuosa. Respecto de la teoría, la PTIN se basa en una lógica clásica pre-keynesiana falsa que sostiene que existe una tasa de interés natural que puede garantizar el pleno empleo. Esa lógica pre-keynesiana se ha extendido con la economía de límite inferior cero que afirma que la tasa natural puede ser negativa en momentos de escasez severa de demanda, de suerte que la política económica debe proveerla dado que el mercado es incapaz de hacerlo. En contraste, Keynes argumenta que la inversión puede saturarse, de manera que las tasas de interés bajas no pueden incrementar la demanda agregada (DA), y que la tasa de interés natural no existe. En cuanto a la evaluación de política, la PTIN soslaya la posibilidad de que las tasas de interés negativas pueden reducir la DA, causar fragilidad financiera, generar una macroeconomía de latigazos debido a las contradicciones entre la política de hoy y la de mañana, promover guerras monetarias que socaven a la economía internacional y fortalecer una economía política que engendra políticas tóxicas. Lo peor de todo es que la PTIN sostiene y alienta el modelo de crecimiento erróneo que se basa en deuda y en la inflación del precio de los activos, que ya ha causado un gran daño.</p>

Sign in / Sign up

Export Citation Format

Share Document