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- Title
A Simple Approach to Macro-economic Dynamics.
- Authors
Allen, R. G. D.
- Abstract
This article presents an analysis of the dynamic systems of macro-economics theory. The system of a closed economy is aggregated into one sector in real terms. In the circular flow of income in the system, it is assumed that there is no lag between output and income but that demand can lag behind income and output behind demand. There are then two real aggregates to specify, Y for income and output alike and Z for demand. Attention is first concentrated on the split of demand Z into the two constituents of consumption and investment, other elements being added later as the models are developed. Two ex ante or planned functional relations are to be specified. One for consumption and one for investment. The simplest consumption function is taken, giving consumption C as dependent only on income Y, the effects of other factors such as prices and incomes distribution being ignored. A simple investment function is postulated, giving investment/as dependent only on the rate of change of output. In the continuous analysis, the rate of change over time is represented by the operator D=d/dt. It is convenient to separate out the autonomous elements in consumption and investment and to write the functions generally as Consumption=b+C(Y) and Investment=a+I(DY), where a is autonomous investment, not dependent on changing output, and b is autonomous consumption, broadly corresponding to the subsistence level. Then C(Y) vanishes when Y is zero and I(DY) when Y is constant. Total autonomous expenditure is written A=a+b.
- Subjects
MACROECONOMICS; ECONOMIC models; INCOME; PRODUCTION (Economic theory); ECONOMIC demand; CONSUMPTION (Economics); INVESTMENTS
- Publication
Economica, 1967, Vol 34, Issue 136, p395
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2552091