Department of Economics. University of Melbourne. Parkville Victoria
3052 Australia
ABSTRACT
This paper develops a model of the trade cycle based on the ideas of
Nicholas Kaldor. The model is shown to generate an endogenous cycle in
which the economy recovers from recession automatically even although the
money wage is fixed. The driving force of the cycle is a Kaldorian investment
function in which the level of investment is an "increasing function of
the level of output and a decreasing function of the stock of capital".
This investment function is derived from the behaviour of a profit-maximising
firm. The model places a greater emphasis on monetary factors than did
Kaldor and can in fact be regarded as an extension of IS-LM analysis.
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