Macro Dynamics with a Job Guarantee – Part 4: Dynamic Stability

The model, in its present form, is short run in nature. It concerns an economy for which total employment, within-sector productivity and productive capacity are all taken as given. Variations in total output are achieved by workers transferring between two broad sectors that have differing productivity. In considering this economy, discussion has touched on aspects of a steady state and system behavior outside the steady state. It has been supposed, in the event of exogenous shocks, that the broader economy (sector b) drives the adjustment process through its reactions to excess demand or excess supply, with the job-guarantee program (sector j) absorbing or releasing workers as appropriate to maintain total employment at its given level. A tendency for the economy to move toward the steady state has been illustrated with reference to a Keynesian cross diagram (part 2) and a description of the growth behavior of actual output and demand whenever the system is outside the steady state (part 3). Attention now turns to the conditions under which this tendency to a steady state is operative, or, in other words, to the question of dynamic stability.

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