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OSCAR DE JUAN

University of Castilla La Mancha. Albacete (Spain)

e-mail: oscar.de!an"!clm.es

14

th

nternational Con!erence on nput-Output "echni#ue$

%ontreal& Octo'er 1(-1)& *((*.

A+S"RAC".

#conomic $ro%th has been !s!ally analy&ed from a macroeconomic standpoint. 'his may

be an acceptable (first appro)imation*+ very !sef!l+ indeed+ for didactical p!rposes. ,!t it

is not the most convenient to !nderstand the historical process of economic $ro%th that

!s!ally is propelled by specific ind!stries and conveys str!ct!ral chan$es. A social

acco!ntin$ matri)+ as the one %e develop in section 1+ provides the proper base for $ro%th

analysis. A second trait of the most pop!lar models of $ro%th is their s!pply-side

orientation. 'he st!dy of s!pply is certainly necessary to !nderstand the limits of the

economy and certain e-!ilibri!m conditions+ as %e shall ill!strate in section 2 in the revie%

of von .e!mann/s model. 0et+ if capitalism is a demand-constrained system (as 1eynes

and 1alec2i ar$!ed)+ economic $ro%th sho!ld be approached from the demand side+

distin$!ishin$ bet%een a!tonomo!s and ind!ced demand. 3n a Sch!mpeterian fashion+

a!tonomo!s demand can be related to the la!nchin$ of innovative firms into ne% prod!cts

and mar2ets. 3n their e)pansion these firms p!ll an ind!ced demand of cons!mption and

capital $oods. 'he constr!ction of a disa$$re$ated m!ltiplier-accelerator in section 3 %ill

stand probably as the main practical contrib!tion of o!r paper.

Key words: Economic growth, input-output analysis, social accounting matrices,

disaggregated multiplier, disaggregated accelerator.

De Juan: A disaggregated multiplier-accelerator model of growth.

1. ntroduction, a SA% to account !or growth.

#conomic $ro%th has been !s!ally analy&ed from a macroeconomic standpoint.

'his may be an acceptable (first appro)imation*+ very !sef!l+ indeed+ for didactical

p!rposes. ,!t it is not the most convenient to !nderstand the historical process of

economic $ro%th that !s!ally is propelled by specific ind!stries and conveys str!ct!ral

chan$es. 3n this section %e shall present the basic traits of a social acco!ntin$ matri)

(SAM) s!itable for the analysis of $ro%th.

.ational acco!nts and inp!t o!tp!t tables reprod!ce -!ite %ell the classical

approach to the economy. 'he #conomics of Adam Smith and 4avid 5icardo p!rported to

analy&e the process of prod!ction+ distrib!tion and destination of the s!rpl!s (net final

prod!ct+ val!e added or income). 'he three spheres are inter%oven. 6rod!ctivity sets a

limit to s!rpl!s or income $eneration. 4istrib!tion of this income bet%een %a$es and

profits infl!ences the e)pendit!re in cons!mption and investment. 7ro%th is the o!tcome

of investment.

8!r first proposal is to maintain this (classical str!ct!re* of national acco!nts in the

constr!ction of a SAM. 9or a closed economy+ o!r SAM %ill e)hibit the three bloc2s of

table 1.

:

'he first one sho%s ho% prod!ction is $enerated and ho% it is distrib!ted

bet%een intermediate cons!mption+ final cons!mption and investment. 'he balance is the

val!e added or primary incomes. 'he second dia$onal bloc2 ('r) acco!nts for

redistrib!tion that allo%s to pass from primary incomes to disposable incomes. A part of

disposable income %ill finance final cons!mption+ the rest is defined as savin$s. 'o

finance investment (o!r third hori&ontal bloc2)+ the ind!stry may co!nt %ith firms/ o%n

savin$s+ ho!seholds/ savin$s and capital transfers ('r-2). 'he last dia$onal bloc2 (99)

s!mmari&es financial acco!nts+ i.e. the flo%s of finance+ $enerally intermediated by

financial a$ents. Addin$ a s!bscript %o!ld allo% !s to 2no% the specific financial

instr!ment: deposits+ credits+ bonds+ or shares.

'he advanta$e of a SAM over national acco!nts and 3-8 tables is that it provides

more detail on economic a$ents and their relationships. Let !s $ive some hints of the detail

convenient for a model of $ro%th. 9ollo%in$ the traditional methodolo$y %e shall

distin$!ish bet%een activities+ factors and instit!tions. 3n t!rn+ instit!tions of the national

economy are s!bdivided in non financial corporations+ financial instit!tions+ ho!seholds

and $overnment.

(:) Activities as industries producing goods. ;e identify ind!stries %ith $oods. 'his

ass!mption does not deny the possibility of oint prod!ction. 3t simply implies the

possibility to obtain a symmetric matri) for interind!stry transactions (T+ in table 1)

%here the n!mber of col!mns (ind!stries) coincides %ith the n!mber of ro%s ($oods).

4isa$$re$ation by ind!stries sho!ld be as lar$e as possible. At least one sho!ld

separate (a) intermediate $oods accordin$ to its role in prod!ction (ener$y+ ra%

materials+ ind!strial $oods+ services to enterprises<)= (b) final cons!mption $oods

:

'o simplify o!r e)position %e shall refer to a closed economy. 'he introd!ction of the (rest of the %orld*

sector %o!ld re-!ire simply the addition of a ne% col!mn and ro%.

>

De Juan: A disaggregated multiplier-accelerator model of growth.

accordin$ to their income elasticity (ordinary $oods and services= l!)!ry $oods and

services)= (c) fi)ed capital $oods by type (str!ct!res+ e-!ipment and vehicles for

ind!stry)= (d) collective services provided by $overnment.

(>) Factors of production and distribution of income. 3n o!r model of $ro%th (that has a

Classical inspiration+ still alive in national acco!ntin$ methodolo$y) labor is the only

factor of prod!ction+ properly spea2in$. 3t receives incomes accordin$ to the %a$e

stip!lated in labor contract. 'he rest of val!e added constit!tes an (operatin$ s!rpl!s*

that belon$s to firms !ntil it is (redistrib!ted* in ta)es+ interest payments+ rents and

dividends. ;or2in$ %ith a SAM %e co!ld introd!ce different types of labor each one

receivin$ a specific 2ind of income. 'o red!ce comple)ity+ %e propose to refer !st to

%a$es that are redistrib!ted amon$ ho!seholds classified accordin$ to the main so!rce

of income. At the same time+ %e introd!ce a matri) of labor/s flo%s ?L@ %ith so many

ro%s as types of labor (non -!alified+ -!alified+ self-employed<) and so many ro%s as

ind!stries.

(A) Institutions and expenditures.

a. Non financial corporations firms or enterprises !"#. 'he first possibility

%o!ld be to identify them %ith ind!stries. 'his is the reason %hy in table 1 %e !se

E both for ind!stries and enterprises. Another possibility+ more !sef!l for certain

p!rposes+ is to separate firms accordin$ to si&e andBor o%nership (local+ national or

m!ltinational).

b. Financial institutions. 'he 2ey distinction separates (monetary financial

instit!tions* (the ban2in$ sector) and (non-monetary financial instit!tions* (m!t!al

and pension f!nds). 'o abrid$e %e shall refer to both as B.

c. $ouse%olds. 9or o!r p!rposes it is convenient to differentiate ho!seholds accordin$

to their e)pendit!re patterns. H1 stands for ho!seholds of non -!alified %or2ers+

%hose income is rather lo% and devoted entirely to cons!mption. H2: ho!seholds of

-!alified %or2ers %ith medi!m incomes+ most of them cons!med in a bas2et that

incl!des l!)!ry $oods. H3: ho!seholds of mana$ers+ self-employed+ property income

recipients= a s!bstantial part of s!ch incomes is s!pposed to be saved= in their

cons!mption bas2et+ l!)!ry $oods are -!ite important. Hp: ho!seholds of pensioners

and other transfers recipients+ %hose e)pendit!re patters are similar to C:.

d. &overnment. 'he !s!al convention is that it (cons!mes* the ($eneral services*

provided by a special ind!stry identified %ith $overnment. ,y means of ta)es and

transfers+ it pays a 2ey role in the redistrib!tion of income.

So far %e have $athered information abo!t the flo%s of prod!ction+ distrib!tion and

e)pendit!res. A complete acco!nt sho!ld provide information abo!t the funds or stoc's

that ma2e possible s!ch flo%s. 'his information co!ld be $athered by means of satellite

accounts.

(. )opulation and %uman capital. Statistics of total and active pop!lation+ classified by

the level of ed!cation are very helpf!l. Comparin$ them %ith the matri) of act!al labor

flo%s (L) %e can fi$!re o!t str!ct!ral !nemployment and possible bottlenec2s+ as %ell.

3n $eneral+ f!ll employment is not a cr!cial constraint in o!r classical model of $ro%th+

A

De Juan: A disaggregated multiplier-accelerator model of growth.

since the n!mber of ho!rs can increase dramatically as2in$ for additional ho!rs or

allo%in$ emi$rants of third %orld co!ntries to enter into o!r labor mar2et.

*. )%ysical capital. 'he stoc2s of physical capital are re$istered in a matri) ?K@ %ith so

many col!mns as ind!stries and so many ro%s as capital $oods. 'he basic capital $oods

are: str!ct!res+ e-!ipment and ind!strial vehicles.

>

'his matri)+ %hen presented in the

form of coefficients ?'@+ %ill play an important role in the e)planation of investment and

the limits of $ro%th.

+. Natural resources. 3n the comp!tation of net prod!ct+ the nat!ral reso!rces !sed !p in

the process of prod!ction are not disco!nted. 'his is an important shortcomin$ of

national acco!nts. 3ts sol!tion re-!ires+ to be$in %ith+ a balance of nat!ral reso!rces+

and some meas!res of their cons!mption or deteriorations in the prod!ction of each

ind!stry. ;ith s!ch information+ %e can fi$!re o!t %hether the act!al path of $ro%th is

s!stainable or not. 3n o!r model %e ass!me it is for three complementary reasons: (a)

%e analy&e a rather short period of time (: to :D years)= (b) %e are considerin$ the

act!al rates of $ro%th that are rather lo% (D to EF)= (c) %e allo% for technical chan$e

that+ !p to a certain e)tent+ tries to economi&e the reso!rces presentin$ problems of

scarcity.

,. Financial balances. 9inance is a necessary part of the prod!ction process+ since firms

have to pay p!rchases and %a$es before the $oods are sold. 9inancial assets are

contin!o!sly created (iss!ed) and destroyed (repaid). .ot%ithstandin$+ at any moment

%e can present the balance of financial assets in circ!lation. 'hey are traded in the

financial mar2ets+ %hose development may help or impair the process of prod!ction and

acc!m!lation.

-able (.

>

4epreciation of capital is a diffic!lt iss!e. 'he best acco!nt %o!ld differentiate capital $oods by type and

a$e+ !sin$ the scheme of (oint prod!ction* (La$er+ :GGH). A second-best acco!nt s!pposes that capital $oods

are repaired contin!o!sly so that their prod!ction capabilities are maintained d!rin$ a certain period. 'his

period differs for each type of capital item and for the partic!lar rate of obsolescence of each ind!stry. 3n this

paper+ %e ass!me that depreciation allo%ances have been already introd!ced in the transaction matri)+ T. 3f

so the (operatin$ s!rpl!s* refers to (net profits*+ %hile (fi)ed capital formation* refers to (net investment*.

I

De Juan: A disaggregated multiplier-accelerator model of growth.

*. Suppl- and demand con$trained $-$tem$. .on Neumann/$ versus

0e-ne$ian/$ model$ o! growth.

1ornai (:GHG) confronts s!pply or reso!rce - constrained systems versus demand

-constrained systems. Socialist economies %o!ld belon$ to the first $ro!p= capitalist

economies to the second. Under socialism+ firms try to $ro% as far as possible to f!lfill the

ambitio!s plans of $overnment. Unfort!nately they are -!ite often impaired by

bottlenec2s. Capitalist firms+ on the contrary+ do not prod!ce as m!ch as their capacity

%o!ld allo%+ b!t as m!ch as they e)pect to sell at (normal prices*= at the same time+

demand e)pectations are fi$!red o!t in a conservative mood+ since the ris2 of ban2r!ptcy is

hi$h. Act!ally+ this is nothin$ b!t the principle o eective demand en!nciated by 1eynes

and 1alec2i in the thirties. A realistic model of $ro%th for a capitalist economy sho!ld be

based on this principle. 0et+ s!pply side models as the one proposed by Jon .e!mann in

:GAK accomplish an important f!nction: they inform abo!t the limits of the model and

certain e-!ilibri!m conditions. Let !s start by revie%in$ this model.

a1 .on Neumann/$ $uppl--$ide model.

Jon .e!mann %as interested in findin$ the ma)im!m rate of $ro%th correspondin$

to a $iven technolo$y

A

. ;a$es and cons!mption are set e-!al to the s!bsistence level and

introd!ced in the interind!stry transaction matri) as any intermediate inp!t. 3n igure 2, %e

%rite T!+ instead of T+ to remind !s that it incl!des somethin$ else. 9rom T! %e derive the

traditional coefficient matri) ("!):

?:@

:

L MN M

= # T "

Analy&in$ the ei$enval!es and ei$envectors of matri) "! %e can obtain val!able

information abo!t the limits and conditions of $ro%th..

:. 'he inverse of the ma)im!m ei$enval!e of "! coincides %ith the ma)im!m rate of

profit and the ma)im!m rate of $ro%th.

?>@

g r L

L

:

L = =

>. 'he ri$ht - hand ei$envector of "! stands for a vector of -!antities indicatin$ the o!tp!t

composition that allo%s the system to e)pand at the ma)im!m speed (

gL

) .

I

A. 'he left hand ei$envector of "! stands for the vector of prices that allo%s the firms in

each ind!stry to obtain the ma)im!m rate of profit

) L (r

and to finance their o%n

e)pansion at the ma)im!m rate (

gL

).

-able *

Jon .e!mann/s contrib!tion to $ro%th theory is impressive. 3t %o!ld seem

impossible to reveal so many secrets concernin$ prod!ction and $ro%th in so fe% pa$esO

A

As a matter of fact+ he admits different technolo$ies for the prod!ction of any prod!ct+ so his first step is the

choice of techni-!e. 3n o!r simplified presentation %e ass!me that the best techni-!e is already 2no%n.

Another simplifyin$ ass!mption of the a!thor is that there is no fi)ed capital. 3n o!r model+ %here there is

fi)ed capital+ the 2ey matri) %o!ld not be the matri) of intermediate coefficients+ b!t the matri) of direct and

indirect fi)ed capital coefficients.

I

'he condition is that the rate of s!rpl!s be !niform for any prod!ct. 'he rate of s!rpl!s is defined by the

follo%in$ ratio: s!rpl!s of prod!ct i B amo!nt of i !sed in the %hole system as an inp!t.

E

De Juan: A disaggregated multiplier-accelerator model of growth.

8f co!rse+ %e have to be conscio!s of the meanin$ of the ass!mptions and the limitations

concernin$ the applicability of the model.

:) $ages and consumption are reduced at the subsistence level. 'his allo%s Jon .emann

to obtain the ma%imum rate of $ro%th for a $iven techni-!e. 'here is no problem to fi)

%a$es and cons!mption at the (historical level*. 'hen %e sho!ld obtain the potential

rate of $ro%th correspondin$ to a $iven technolo$y and cons!mption patterns+ as

Carrod did in :GAG for the a$$re$ate economy.

>) "ll the wages, and only wages, are consumed. 'he removal of this ass!mption %o!ld

destroy some ele$ant properties of the model b!t not the content. 'he rate of profit

%o!ld not lon$er coincide %ith the rate of $ro%th. 0et %e co!ld relate both of them by

means of the Cambrid$e e-!ation proposed by 1aldor (:GEP).

A) &roits are entirely and automatically saved and invested. 'his i$nores the problem of

effective demand and renders the model !seless to analy&e the act!al dynamics of

capitalism. 9irms do not prod!ce al%ays at f!ll capacity. .either do they

systematically invest the savin$s correspondin$ to f!ll capacity income.

I) "ggregate demand reduces itsel to induced consumption and induced investment.

'here is no room for a vector of proper a!tonomo!s demand that %o!ld allo% !s to

identify the (locomotives* of the system. 'here is no room for the str!ct!ral chan$es

that characteri&ed the act!al path of capitalist economies. 4espite bein$ a disa$$re$ated

model+ $ro%th is harmonic.

3n o!r opinion+ the practical lesson %e can derive from the von .e!mann/s model is

that e-!ilibri!m prices are embedded in the very str!ct!re of prod!ction. Sraffa (:GPD) p!t

the iss!e in a more clear %ay. 3n a capitalist competitive economy+ the prices of prod!ction

are determined by technolo$y and the real %a$e. 'hey are the prices than ens!re a !niform

rate of profit for the representative firms of all ind!stries. 'hey are the prices that play as

$ravity centers of mar2et prices: e)cesses of demand (at s!ch prices) call for -!antity

ad!stments. 4eviations are possible b!t they are rather a short r!n phenomenon in

ind!stries prod!cin$ perishable $oods. 'hese ideas provide a firm base for b!ildin$ !p a

m!ltiplier-accelerator model %here firms ad!st to chan$es in demand via -!antities+

instead of prices.

'1 nput-output demand 2 $ide model$.

Most inp!t-o!tp!t models can be characteri&ed as demand-side. 'o be$in %ith+ the

traditional (inverse of Leontief* is nothin$ b!t a technical m!ltiplier that allo%s !s to pass

from the vector of final demand to the vector of total o!tp!t. 3n the follo%in$ form!la #

stands for the col!mn vector of total prod!ction= d for the col!mn vector of final demand

that incl!des final cons!mption+ investment+ real p!blic e)pendit!re and e)ports= and " for

the matri) of technical coefficients:

?A@ [ ] d " ' # N

:

= .

'he traditional inp!t o!tp!t m!ltiplier endo$enei&es cons!mption e)pendit!res

addin$ a ne% col!mn (the cons!mption vector) and a ne% ro% (incomes devoted to

cons!mption). 'he (interind!stry transaction matri)* becomes T

(

+ and the matri) of

P

De Juan: A disaggregated multiplier-accelerator model of growth.

coefficients+ "

(

. 'otal o!tp!t %ill be a m!ltiple of a!tonomo!s demand (da) that is

s!pposed to incl!de investment+ real p!blic e)pendit!re and e)ports.

?I@ [ ]

a

d N A - 3 -

:

+

=

'he m!ltiplier derived from a SAM str!ct!re (after the seminal paper by 6yatt and

5o!nd+ :GHG) follo%s the same analytical scheme+ %ith the advanta$es that it provides

more detailed information and it can be bro2en do%n into several components+ sho%in$ the

transmission mechanism from prod!ction to incomes and to e)pendit!res.

E

'hese

advanta$es are also present in o!r model+ since it is also derived from a SAM. 3ts

contrib!tion is that+ by endo$enei&in$ a part of investment+ it yields a more po%erf!l

m!ltiplier+ a m!ltiplier able to e)plain more %ith less.

P

'he novelties of the model are

ill!strated in table 3 and can be s!mmari&ed in the follo%in$ points.

-able +

(:) 'he matri) of a!tonomo!s demand ()) is defined in a more strict sense. 3t incl!des+ as

!s!al+ e)ports and real p!blic e)pendit!res. ,!t contrary to the traditional models+ it

does not incl!de the part of investment aimed at e)pandin$ prod!ctive capacity. 8nly

t%o types of investment are considered (proper a!tonomo!s demand*. 'he first is

(residential investment* by ho!seholds. 'he second can be termed (moderni&ation

investment* and refers to the introd!ction by firms of ne% prod!cts. 3n empirical

st!dies %e need a more precise definition. 8!r proposal is to incl!de as (proper

a!tonomo!s demand* those $oods %hose rate of $ro%th is clearly different from

avera$e.

(>) 3nd!ced cons!mption (*!) refers to the incomes+ that $ro% pari passu %ith prod!ction

and are systematically cons!med. 'he %ay to endo$enei&e cons!mption in order to

obtain the multiplier %ill be e)plained in the section 3.

(A) 3nd!ced investment or acc!m!lation ('!) refers to the prod!ction of ne% capital $oods

in order to e)pand capacity pari passu %ith demand.. 'his is the acceleration principle

that %ill also be e)plained in section 3. Cere %e shall simply %arn+ that the

(ind!cement* in investment is a m!ch more fra$ile one. Savin$s %ill be acc!m!lated

only if entreprene!rs contin!e to be optimistic abo!t demand e)pansion.

(I) 8!r m!ltiplier-accelerator appears as a compact matri): ?'-"

+

@

-:

. Contrary to traditional

inp!t-o!tp!t m!ltipliers+ %e do not add ne% col!mns and ro%s to the interind!stry

matri) T. ;e simple enlar$e the fi$!res in each cell by addin$ !p: (a) intermediate

cons!mption= (b) fi)ed capital cons!mption= (c) ind!ced final cons!mption= (d) ind!ced

investment. ,y doin$ so %e obtain the matri) of -!antities T

+

+ and the correspondin$

matri) of coefficients+ "

+

.

(E) 'his m!ltiplier-accelerator allo%s !s to comp!te the increase in total prod!ction (-)+ net

income (0) or employment (L) associated to an increase in proper a!tonomo!s demand

(Q). 'he interpretation is the conventional one. 3n the simple 1eynesian or inp!t-

E

'he lin2 bet%een income of different social $ro!ps and cons!mption %as introd!ced in 1alec2i/s

(a$$re$ate) m!ltiplier and developed in Miya&a%a Masse$!i Rs (disa$$re$ated) m!ltiplier (Miya&a%a S

Masse$!i+ :GPA). 1!r& (:GKE) derives a m!ltiplier that relates prod!ction+ distrib!tion and demand.

P

Leontief/s (dynamic inverse* (:GHD) is the first attempt to endo$enei&e investment+ altho!$h by a different

method and for different p!rposes. Ce ta2es final cons!mption at year t as a!tonomo!s demand or (s!rpl!s*.

Ce then derives the stoc2s of capital $oods necessary to prod!ce at t s!ch (s!rpl!s*+ and the path of formation

of the capital stoc2 d!rin$ the precedin$ years.

H

De Juan: A disaggregated multiplier-accelerator model of growth.

o!tp!t m!ltiplier+ an increase in investment (i.e. the prod!ction of ne% machines to

enlar$e capacity) ca!ses an increase in o!tp!t and incomes !ntil the savin$s stemmin$

from them e-!al in val!e the ne% investments. 3n o!r m!ltiplier-accelerator model+ an

increase in the prod!ction of the $oods considered (proper a!tonomo!s demand* %ill

ca!se an increase in prod!ction !ntil the a!tonomo!s incomes stemmin$ from it e-!als

in val!e the increase in demand+ i.e. !ntil TU V TQ.

#-!ations ?Ea@ and ?Eb@ provide an al$ebraic s!mmary of the precedin$ ideas:

?Ea@

[ ] ) L N (bein$ N

M M

: W W

:

W

W

= =

+ = + + + =

# T " ) " ' #

) T ) ' * T #

?E.b@

[ ]

[ ]

[ ] ) l

) v

)

=

=

=

N A - 3 N L

N A - 3 N L 0

N A - 3 -

:

W

:

W

:

W

vL is a dia$onal matri) %hose terms are the ratios of val!e added in the total o!tp!t of any

ind!stry. l is a rectan$!lar matri) that sho%s the labor coefficients by types of labor and

ind!stries.

c1 3raphical illu$tration$.

Let !s concl!de the section %ith some $raphical ill!strations. ,igure 1 presents the

dynamics of a s!pply constrained system as it is the case of socialist economies and te)t-

boo2 capitalist economies %here the problem of effective demand is ass!med a%ay. At

time (D* the stoc2 of acc!m!lated capital amo!nts to 1o. 7iven technical conditions (the

capital B labor ratio V and the capital B o!tp!t ratio V 2) firms %ill employ Lo %or2ers and

%ill prod!ce a level of o!tp!t 0o. A part of it %ill be cons!med (CVc0+ bein$ c the

propensity to cons!me that !nder the ass!mption that %a$es and only %a$es are cons!med

coincides %ith the ratio %B). 'he remainin$ part stands for profits that are s!pposed to be

saved and invested. At the be$innin$ of year :+ the stoc2 of capital %o!ld be

1:V1oX3oV1oXSo. 9ollo%in$ the scheme+ year after year+ the economy %o!ld e)perience a

harmonic+ efficient and re$!lar $ro%th at the potential rate.

Figure (

,igure 2 ill!strates the path of $ro%th in a demand constrained system as capitalism

is s!pposed to be. 'he independent variable is a!tonomo!s demand. Let !s s!ppose that

at year (D* a!tonomo!s demand amo!nts to "o and it is $ro%in$ at g-. 'o prod!ce s!ch

$oods firms need to hire ne% %or2ers (%ho cons!me most of their income)+ and to b!y

capital $oods that allo% an efficient e)pansion of prod!ction at a rate g-.

H

'his (ind!ced

demand* is capt!red by the multiplier . accelerator mechanism and can be represented

dra%in$ a parallel to /i. 3t intersects %ith the prod!ction f!nction at 0o. 7iven o!tp!t and

labor prod!ctivity %e obtain the level of employment (1o20o3) that may fall belo% f!ll

H

'he ind!ced demand of intermediate $oods is hidden in macroeconomic models. Act!ally it is acco!nted as

(indirect labor* and (indirect fi)ed capital*.

K

De Juan: A disaggregated multiplier-accelerator model of growth.

employment. 7iven the capital B o!tp!t ratio (4) or de capital B labor ratio () %e obtain the

stoc2 of capital that %ill be effectively !sed. 3t may also fall belo% the e)istin$ stoc2+

implyin$ !nder!tili&ation of capital. ,!t firms do desire to %or2 at f!ll capacity+ so they

%ill try to recover it by modifyin$ investment decisions.

Figure *

Figure +

,igure 3 $oes deeper into the dynamics of a!tonomo!s demand. 'he en$ine of

$ro%th consists in the introd!ction of ne% $oods and services by the innovative firms.

K

Us!ally they sprin$ in (cl!sters* and they sp!r the demand for complementary $oods.

Some $oods (s!bstit!tes) may be displaced+ b!t $enerally the balance is positive (creative

destr!ction). 3n the $raphic+ the hori&ontal arro% !nder the headin$ of innovation eects,

encaps!lates s!ch comple) relationships. /iussion eects refer to the potential mar2et

%hich faces any ne% $ood. Capital $oods and d!rable cons!mption $oods !s!ally evolve

follo%in$ a lo$istic c!rve+ as the one depicted in fi$!re A. At the be$innin$ the rate of

$ro%th is very lo%. 3t accelerates as more people 2no% abo!t the prod!ct and they have the

income to p!rchase it. After a point+ the mar2et for the ne% prod!ct sho%s symptoms of

sat!ration and its rate of $ro%th decelerates. /ragging eects refer to ind!ced

cons!mption and investment that are capt!red by the m!ltiplier and accelerator

mechanisms that %e shall comp!te in the ne)t section.

4. Computation o! the multiplier-accelerator.

5a1 nduced con$umption.

3n the 5eneral Theory+ 1eynes ass!med that the b!l2 of private cons!mption

depended on the disposable income of ho!seholds (0d). 'he hypothesis %as verified at that

time+ and has been ratified ever since. 3n the second half of the >D

th

cent!ry the propensity

to cons!me of ho!seholds in advanced co!ntries has been -!ite hi$h and stable. 1alec2i

advanced a similar statement st!dyin$ in depth the relation bet%een cons!mption

e)pendit!res and income distrib!tion. 'he a$$re$ate propensity to cons!me (c) %o!ld be a

%ei$hted avera$e of %or2ers/ propensity to cons!me o!t of %a$es (cw that is s!pposed to be

close to :) and capitalists/ propensity to cons!me o!t of profits (cr that is s!pposed to be

rather lo%). 3f so+ the a$$re$ate ind!ced cons!mption co!ld be comp!ted by the follo%in$

e-!ation %here $! stands for after-ta) %a$es and 6! for after-ta) profits.

?P@

) B M N( ) B M N( N M 0 6 c 0 $ c 0 c *

r w d

+ = =

8!r social acco!ntin$ matri) allo%s !s to present more social $ro!ps+ each one

characteri&ed by a partic!lar propensity to cons!me and a partic!lar cons!mption bas2et.

4e Y!an+ Cadarso S CZrcoles+ :GGI+ presented an ind!ced cons!mption f!nction ?*!@ of the

follo%in$ type:

K

3n o!r description %e are follo%in$ Sch!mpeter (:G:>). A recent boo2 by ,a!mol (>DD>) proves that

Sch!mpeterian ideas are still !sef!l.

G

De Juan: A disaggregated multiplier-accelerator model of growth.

?H@

[ ] [ ] [ ]

hn

hh

%

hh

nh nn

Tr 0 T ' &* /* * + = N N N M

'he e)pression sho!ld be read from ri$ht to left.

G

8!r point of depart!re is the matri) of

val!e added or primary incomes matri) ?0@. ;e add c!rrent transfers ?Tr@ and disco!nt

direct ta)es [T%\ to obtain disposable income. 6rem!ltiplyin$ by [6C\ %e obtain the

income systematically cons!med. 3n the dia$onal of [6C\ %e find the cons!mption

propensities of the different ho!seholds. ?4C@ indicates the distrib!tion of cons!mption

e)pendit!res by $oods.

:D

3t is a rectan$!lar matri) %ith n ro%s (each one for any ind!stry-

prod!ct)+ and h col!mns (each one for each ho!sehold $ro!p). ,y constr!ction+ any

col!mn of ?4C@ adds !p to :.

::

5'1 nduced in6e$tment.

3nvestment may be also split into a!tonomo!s and ind!ced e)pendit!res. 'he

a!tonomo!s part+ or (moderni&ation investment*+ is related to the la!nchin$ of firms into

ne% $oods and mar2ets. 3n principle+ it does not increase capacity= it simply replaces old

capital $oods by ne% ones that %ill ma2e possible f!t!res increases in prod!ctivity.

(3nd!ced investment*+ (e)pansionary investment* or+ simply+ (acc!m!lation* can be

e)plained by the accelerator mechanism. ,y acc!m!latin$ capital+ firms try to increase

prod!ctive capacity in order to match+ in efficient conditions+ the permanent increases in

demand. 'he accelerator investment f!nction is the only one that yields acceptable

res!lts. 6robably+ after separatin$ the a!tonomo!s part+ the f!nction %o!ld behave even

better.

Let !s start o!r presentation in a macroeconomic settin$ that %e e)plained %ith

more detail in 4e Y!an (:GGG). 'he a$$re$ate investment of firms at the end of period (t*

depends on the e)pected increases in a$$re$ate demand. ;e can %rite:

?K@

t - t t t t

0 g 4 / g 4 / / g 4 ' N N N N ) N( N M

:

= = =

+

4 is the normal or desired capital B final o!tp!t ratio. ;hen the act!al ratio (4t) e-!als the

desired one+ the de$ree of capacity !tili&ation is at its normal level: u2434tV:. (g7/t* is the

e)pected increase in a$$re$ate demand+ that is s!pposed to end!re for $ood. A feat!re of

the 1eynesian model %e are b!ildin$ !p is that some components of demand have an

a!tonomo!s rate of $ro%th (g-) %hile the others adapt passively to the former. 3f so %e can

!se g- instead of g. ;e can also %rite 0t instead of /t+ since final prod!ction and income

(0) ad!sts to e)pected final demand.

G

An$!lar brac2ets imply a dia$onal matri). ' is the identity matri). 'he s!bscripts refer to the dimensions of

the matrices. ;e start %ith a matri) of (h* ro%s and (n* col!mns= so many ro%s as ho!sehold $ro!ps (and

related instit!tions)= so many col!mns as ind!stries. ;e end !p %ith a (nNn] matri)+ altho!$h only $oods

devoted to final cons!mption %ill have positive fi$!res in the correspondin$ ro%.

:D

3nformation abo!t propensities to cons!me and e)pendit!re patterns can be obtained from family b!d$et

statistics. 'he problem is that the cons!mption $ro!ps of s!ch statistics do not coincide %ith the cons!mption

$oods contemplated in inp!t o!tp!t tables. A brid$e is necessary to oin both statistics. #conometrics %ill

help to fill certain $aps.

::

3n the complete model %e sho!ld s!btract val!e added ta)es (8"T) and the imports of cons!mption $oods

(9c) in order to obtain (domestic ind!ced cons!mption* (*:). 'he ne% e-!ation %o!ld loo2 li2e:

*:2 ;'-9c<7;'-8"T<7*!.

:D

De Juan: A disaggregated multiplier-accelerator model of growth.

'he precedin$ e-!ation %or2s %hen the economy is in the e-!ilibri!m path of

$ro%th+ i.e. %hen 4 is initially at the desired level and the e)pected $ro%th of a!tonomo!s

demand coincides %ith Carrod/s %arranted rate of $ro%th. 3n dise-!ilibri!m conditions

the form!la has to be modified. S!ppose that+ for any reason+ a!tonomo!s demand remains

sta$nant at t. 3nvestment at the end of t-: %ill be nil and some e)cess of inventories (Ei,t)

are bo!nd to appear. 3n t+ firms %ill disco!nt s!ch !ndesired inventories from e)pected

demand. 6rod!ction %ill fall and the previo!s stoc2 of capital %ill e)ceed the re-!ired one.

#)cess of capacity (E2+t) %ill sho% !p+ implyin$ 4=4t, u>1. At the end of t+ even if

a!tonomo!s demand res!mes the previo!s rate of $ro%th+ these e)cesses of capacity %ill be

disco!nted from the investment comp!ted in ?K@. 3n dise-!ilibri!m sit!ations+ the

investment f!nction %o!ld loo2 li2e:

?G@ t a

t

t 4 t i t t t

0 g

u

4

E E / / g 4 ' N N )) ( N( N M

+ : + :

=

+

'he compact form at the ri$ht-hand side is a ro!$h appro)imation. ;hat matters (as %e

have sho%n in 4e Y!an+ :GGG) is that+ %henever firms behave as indicated+ the e)cesses

(shorta$es) of capacity are bo!nd to disappear. 3n the absence of ne% shoc2s+ the economy

%o!ld soon recover a f!ll capacity path of $ro%th.

'he translation of these ideas to the disa$$re$ated model is not a strai$htfor%ard

iss!e. 'o be$in %ith final demand and final o!tp!t has to be replaced by a dia$onal matri)

of total o!tp!t+ [-\. 'he a$$re$ate capital Bnet o!tp!t ratio %ill become a matri) of direct

capital coefficients: ?4@ V ??@N[#\

-:

. And %hat %o!ld be the rate of $ro%th^ ;e cannot

!se the rate of $ro%th of a!tonomo!s demand+ since it consists of several $oods each one

$ro%in$ at a specific rate. 6!t in a positive %ay. ;e co!ld ta2e a sin$le $ro%th rate for all

ind!stries (g-)+ only %hen all the components of the vector of a!tonomo!s demand are

$ro%in$ at the same rate+ and this rate coincides %ith the %arranted or potential one. 3f so+

the path of $ro%th %o!ld be harmonic+ steady and efficient< 0et this ass!mption %o!ld

p!t !s o!tside the m!ltisectoral capitalist economy %e try to !nderstand. 9or the sha2e of

realism %e sho!ld chan$e the scalar g- for matri) [$\. 3n the dia$onal of this matri) %e

find the e)pected rate of $ro%th of total o!tp!t in each ind!stry+ a rate that firms e)trapolate

from the past. ;henever there is a chan$e in the rate of $ro%th of one or several

components of a!tonomo!s demand+ e)cesses (ins!fficiencies) of inventories and capacity

%ill appear. 9irms %ill behave as indicated in ?G@ in order to $et rid of them. After a time

they %ill learn the ne% rate of $ro%th of the demand for their prod!cts and their investment

decisions %ill be determined by the follo%in$ e)pression:

?:D@

[ ] [ ]

nn nn

nn nn

# g 4 ' N N M =

:>

5c1 "he multiplier-accelerator.

'he m!ltiplier-accelerator that capt!res ind!ced cons!mption and investment for the

a$$re$ated economy %o!ld be:

:>

9or b!ildin$ the accelerator %e are only interested in ind!ced (domestic* investment. 'he imports of

capital $oods sho!ld be therefore disco!nted. 'he res!lt %o!ld be: ':2?'-?4@7'!.

::

De Juan: A disaggregated multiplier-accelerator model of growth.

?::@

4g c

=

:

:

W

A similar form!la can be derived for o!r m!ltisector economy. 3np!t-o!tp!t tables

and SAM present %ith a $reat detail the interind!stry transaction matri)+ ?T@n+n. 3t $ives

information abo!t the intermediate inp!ts re-!ired by each ind!stry to s!stain its act!al

level of prod!ction.

:A

;e have comp!ted the matrices of ind!ced cons!mption ?*!@ and

ind!ced investment ?'!@. Addin$ them !p %e obtain the enlar$ed transaction matri) ?T

+

@:

:I

?:>@ M M

W

' * T T + + =

4ividin$ by the total o!tp!t of each ind!stry %e obtain the (economic matri)* ?"

+

@+

%hose cells are e-!al or $reater than the !s!al technical matri) ?"@.

?:A@

: W W

L N

= # T "

.o% %e comp!te:

?:I@ [ ]

:

W

= " ' 9@

9@ is the m!ltiplier-accelerator of total or $ross o!tp!t+ %e %here loo2in$ for. #ach

col!mn informs !s abo!t the direct and indirect effects of a !nitary e)pansion of ind!stry

over the o!tp!t of all the ind!stries that provide reso!rces to . 'he provision may be in

direct or indirect %ay+ and the (reso!rces* are defined in the broadest sense so to incl!de

intermediate $oods+ final cons!mption $oods to attend the cons!mption stemmed from the

ne% incomes+ and fi)ed capital $oods to e)pand capacity at the re-!ired rate.

'otal o!tp!t involves the !s!al problem of do!ble co!ntin$. 5esearchers !s!ally

are more interested in obtainin$ the dra$$in$ effects on net income. ;e can comp!te it by

prem!ltiplyin$ ?9@@ by the dia$onal matri) vL

+ %hich indicates+ for each ind!stry+ the

proportion of val!e added in total o!tp!t:

?:E@ [ ]

:

W

N L

= " ' v 90

'o obtain the m!ltiplier-accelerator of employment %e have !st to prem!ltiply

?9@@ by the matri) of labor coefficients ?l@. #ach col!mn of 91 informs abo!t the

-!antities and -!alities of the obs created in the %hole system after the !nitary e)pansion

of ind!stry . A$ain+ it acco!nts for the obs created in the prod!ction of intermediate

$oods+ final cons!mption $oods and fi)ed capital $oods.

?:P@ [ ]

:

W

N

= " ' l 91

Let !s concl!de o!r analysis of the m!ltiplier-accelerator %ith some notes abo!t its

e)istence and stability. 9@ e)ists and is stable provided the addition of the elements of any

col!mn of the economic matri) ("

+

) is lo%er than :.

:E

'he viability in prod!ction ass!res

:A

;e have ass!med that T matri) incl!ded+ as %ell+ fi)ed capital cons!mption. 3n practice this is not the case

so %e sho!ld comp!te the matri) of capital cons!mption by $oods and ind!stries before addin$ it to

intermediate cons!mption.

:I

;e remind that for the p!rposes of this section+ all the matrices sho!ld contain only domestic p!rchases.

'he dimension of all these matrices is n7n + so %e can omit the s!bscripts and the s-!are brac2ets.

:E

'his is a s!fficient condition.

:>

De Juan: A disaggregated multiplier-accelerator model of growth.

that col!mns of matri) of technical coefficients (") are lo%er than :. After the

introd!ction of final cons!mption coefficients in matri) "

(

the condition for stability is not

%arranted. ;e have to r!le o!t the possibility that ho!seholds+ via credit+ cons!me

systematically more than they earn. After the introd!ction of investment coefficients %e

obtain "

+

and the chances to ens!re stability are still lo%er. 'he e)pected rate of $ro%th of

demand cannot be %hatsoever.

'he proof is easier from a macroeconomic standpoint. 'o $et a positive

(economically si$nificant) val!e for the a$$re$ated m!ltiplier-accelerator $iven in ?::@ the

e)pected $ro%th of demand sho!ld be lo%er than Carrod/s %arranted rate.

?:H@

4

s

4

c

g =

<

:

'he last ratio can be e)pressed as s34 %here s stands for the part of income systematically

saved and 4 for the desired ratio capital B o!tp!t. 3f the propensity to cons!me is red!ced to

&ero+ s becomes :+ and the ma)im!m rate of $ro%th is :B4+ %hich coincides %ith Jon

.e!mann/s

gL

.

'hin2s are more comple) in a m!ltisector economy. Credits allo%s %or2ers and

firms of ind!stry to cons!me and invest above the incomes $enerated in its process of

prod!ction. 0et+ they cannot behave eternally in this %ay. Credits have be repaid o!t of

%a$es and profits. 'he disa$$re$ated m!ltiplier-accelerator sho!ld be derived from a SAM

%here the str!ct!res of prod!ction+ distrib!tion and e)pendit!re 2eep certain conditions of

viability. 'he application of this instr!ment is aimed at capt!rin$ the normal e)pansion of

ind!stries interrelated via prod!ction+ cons!mption and investment. 3nd!stries $ro%in$ at

a hi$her rate sho!ld be located in the a!tonomo!s demand vector (the (m!ltiplicand*)+ not

in the m!ltiplier-accelerator matri).

4. Conclu$ion$.

Capitalism is a demand-constrained system. 'his %as o!r first 1eynesian

hypothesis that has been fertili&ed %ith some ideas of Sch!mpeter. 'he motor of capitalist

economies has been located in the innovative firms la!nchin$ into ne% $oods and ne%

mar2ets. 3n their e)pansion+ these firms dra$ alon$ the prod!ction of the ind!stries

interrelated %ith them in the broadest sense and either in a direct or indirect %ay. ;hat

2ind of $ro%th can %e e)pect form these hypothesis^ Certainly it has nothin$ to do %ith

the harmonic+ steady and efficient $ro%th derived from s!pply side models+ either classical

(as the von .e!mann/s model) or neoclassical. 7ro%th %ill be+ precisely+ characteri&ed by

the opposite notes.

(:) -ransformational growt%. 'he innovative firms %ill probably $ro%+ for a %hile+ very

-!ic2ly. 'he ind!stry+ they belon$ to+ %ill accelerate its rate of $ro%th+ !nless the

e)pansion of the ne% $oods res!lts in a displacement of old ones. 'he rest of the

economy is s!pposed to $ro% at the avera$e rate of a!tonomo!s demand+ ta2in$ into

acco!nt both the creative and destr!ctive forces. ,!t as soon as %e allo% for technical

chan$e (associated %ith the introd!ction of ne% capital $oods)+ the sectoral rates of

$ro%th are bo!nd to diver$e. 3nd!stries receivin$ the b!l2 of benefits of technical

innovation %ill $ro% faster+ provided their price elasticity is hi$h eno!$h. 6asinetti

:A

De Juan: A disaggregated multiplier-accelerator model of growth.

(:GK:)+ reminds !s (#n$el/s la%* to concl!de that the system %ill e)pand by the front

of ind!stries %ith hi$her income elasticity. 3n a n!tshell+ the te)t boo2 (harmonic

$ro%th* %ill ma2e %ay to (transformational $ro%th*+ to !se the term coined by .ell

(:GGK).

(>) Irregular growt%. 3f the e)pansion of ne% $oods follo%s a lo$istic c!rve (as the one

depicted in fi$!res > and A) $ro%th %ill not be steady b!t irre$!lar. 'he economy %ill

e)perience a lon$ %ave of prosperity after the introd!ction of an epoch ma2in$

innovation or a cl!ster of innovations %ith important diff!sion and dra$$in$ effects.

;hen the mar2et for these prod!cts become sat!rated+ a lon$ %ave of depression may

start !nless other innovations ta2e the relay. #mbedded in s!ch lon$ %aves %e can

e)pect to find medi!m term cycles (!s!ally of a chaotic type)+ ca!sed by ad!stments

via inventories and capacity !tili&ation.

(A) Inneficient growt%. 9irms try contin!o!sly to ad!st capacity at the desired level. ,!t

any chan$e in the e)o$eno!s rate of $ro%th or any fail!re in demand e)pectations is

bo!nd to ca!se an inefficient !se of capacity. 'he inefficiencies %o!ld be even clearer

sho!ld they be meas!red by the rate of !nemployment.

8!r model ill!minates these $eneral and important characteristics of capitalist

economies. 3n addition+ it may !sef!l for more concrete tas2s. 3t helps comp!te the impact

on total o!tp!t+ net income and employment associated to the e)pansion of some ind!stries

and firms+ both %hen they s!pply domestic or forei$n mar2ets. 'he m!ltiplier-accelerator

%e propose has t%o important advanta$es over the !s!al m!ltiplier derived from inp!t-

o!tp!t tables or SAM. (a) 3t is more complete since it incl!des ind!ced investment of the

accelerator type= (b) 3t is easier to !se and interpret since it is presented in a compact form.

:I

De Juan: A disaggregated multiplier-accelerator model of growth.

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:E

De Juan: A disaggregated multiplier-accelerator model of growth.

60A''+ 7. S 58U.4+ Y. (:GHG): (Acco!ntin$ and fi)ed price m!ltipliers in a social

acco!ntin$ matri) frame%or2*+ The Economic Bournal+ n. KG+ p. KED-KHA.

SCCUM6#'#5+ Y. (:G:>): Theorie der $irtschatlichen Entwic4lung+ M!nich+ Jerla$

4!n2er S C!mbolt.

S5A99A+ 6. (:GPD): &roduction o commodities by means o commodities. &relude to a

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J8. .#UMA..+ Y. (:GIE-P): (A model of $eneral e-!ilibri!m*+ The 6eview o

Economic Ctudies+ v. b333+ p. :-G. (8ri$inal 7erman paper of :GAK).

:P

De Juan: A disaggregated multiplier-accelerator model of growth.

-able (: A .A/ suitable for growt% analysis.

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.ymbols: # : activities or ind!stries that prod!ce $oods= %e ma2e them to coincide %ith the instit!tion

(enterprises*= L V labor= C V ho!seholds= 7 V $overnment= 9 V financial instit!tions= ' V interind!strial

transactions or intermediate cons!mption= C V final cons!mption= 3 V investment= 0 V val!e added as primary

incomes= 'r V c!rrent transfers= it incl!des ta)es= 'r-2 V capital transfers= S V savin$s= 99 V financial flo%s.

-able *: A .A/ for t%e 0on Neumann supply1side model.

6rod!ction Cons!mption 3nvestment

9. 6rod!ction

(sales) '/ 3

9. Cons!mption

(%a$es above

s!bsistence)

9. 3nvestment

(profits) 5VSV3

:H

De Juan: A disaggregated multiplier-accelerator model of growth.

-able +.a : A .A/ for a demand constrained economy.

6rod!ction 3nd!ced

Cons!mption

3nd. 3nvestment

(Acc!m!lation)

A!tonomo!s

4emand

9. 6rod!ction

'

C/

3/

8

9. 3nd!ced

Cons!mption 0 'r

9. Acc!m!lation

S/ 'r2X99

A!t. 3ncome

to 9. A!t. 4.

-able +.b: A compacted .A/ for a demand constrained economy.

7ro%in$ reprod!ction

:+ > < n

A!tonomo!s 4emand

9. 7ro%in$ 5eprod!ction

:

<

n

'

W

8

A!tonomo!s 3ncome

to 9. A!tonomo!s 4emand

:K

De Juan: A disaggregated multiplier-accelerator model of growth.

Figure (: &rowt% in a supply 1 constrained system.

0

0VL

0: CVc0V%LV;

0D

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;oVCo

c

Lo L: L

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1

Figure *: &rowt% in a demand 1 constrained system.

A!tonomo!s demand

A:

Ao

D : 'ime

A$. 4 and net o!tp!t

LV0B

0:

0o

4iVCiX3i

Ci

A:

Ao

c #mployment

Lo L:

1o

1:

Stoc2 of capital

:G

De Juan: A disaggregated multiplier-accelerator model of growth.

Figure +: -%e dynamics of autonomous demand.

A!tonomo!s 4emand

4iff!sion effect

3nnovation effects

time

4ra$$in$ effect.

3nd!ced demand

>D

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