Demand-Led Growth With Cycles – A Simple Model and Illustration

Regular readers may have noticed that I am interested, among other topics, in demand-led growth theories as explanations of capitalist growth performance. In the following discussion, I borrow very liberally from two approaches in this theoretical tradition, without remaining completely true to either of them. One is Kalecki’s approach, especially as outlined in his 1954 work, Theory of Economic Dynamics. Following Kalecki, the current discussion treats the long run simply as a sequence of short runs without any independent existence of its own. Lagged effects of private investment generate cycles. Capitalist growth is considered to be dependent upon ‘external markets’, by which is meant sources of demand that are external to the domestic private sector. Here, for simplicity, government is taken to be the only external source of demand. (For an open economy, exports are another important example of demand that is external to the domestic private sector.)

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