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A Keynesian Monetary Growth Model Under Monopolistic Competition: Is Economic Growth Sustainable Without Government Help?

In: Keynesian Economics and Price Theory

Author

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  • Masayuki Otaki

    (The University of Tokyo)

Abstract

Almost every developed country experiences serious enlargement of the scale of government, specifically in the expansion of fiscal deficit fiscal deficit s. This chapter outlines why such a phenomenon is so prominent, based on a Keynesian growth model entirely compatible with standard neoclassical microeconomics. Cost-minimizing investment plays a key role. Whenever the demand that each firm faces is constraint by effective demand effective demand (cases include the situation of monopolistic competition monopolistic competition ), a firm strives to raise the productivity of labor and save its production costs. Since such a process continues only until costs are completely minimized, human capital investment is gradually reduced as the improvement in the production process advances. Thus, this form of investment cannot become a driving force for economic growth. As a result, and differing from the case for perfect competition analyzed in Chap. 12, ceaseless expansionary aggregate demand policy is inevitably required when seeking sustainable economic growth under monopolistic competition.

Suggested Citation

  • Masayuki Otaki, 2015. "A Keynesian Monetary Growth Model Under Monopolistic Competition: Is Economic Growth Sustainable Without Government Help?," Advances in Japanese Business and Economics, in: Keynesian Economics and Price Theory, edition 127, chapter 13, pages 159-173, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55345-8_13
    DOI: 10.1007/978-4-431-55345-8_13
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