The theory of the firm in relation to business cycle theory

If non-linear accelerator type models are to be used in business cycle theory, it is necessary to understand the process by which a change in income induces investment and whether or not the effect of a change in income upon investment varies systematically over the business cycle. We will examine the hypothesis that the effect upon investment of a change in income depends upon the relation between investment decisions of individual firms and (1) the structure of the product markets in which...

The analysis of business cycles the problem and the approach

Paraphrasing Voltaire, we can assert that if business cycles did not exist, the economic theorist would have invented them. For if we look at the problem of business cycles, without any doctrinaire bias, it seems obvious that in this branch of economics a natural connection occurs between the often too separate compartments of economic analysis between the 'monetary' and the so-called real phenomena. Therefore, a theory of business cycles, to be consistent with the observable material and the...

Stochastic Models 41 The Error Approach

So far we have taken up two varieties of accelerator-multiplier models, the linear and the non-linear variety. We have examined each type, and have shown that they each cannot stand alone as business cycle models. We have constructed a 'new' model which exhibits secular stagnation and explosion as alternative 'stable' states. We have isolated as the significant problem for study the way in which the behavior of firms generates the accelerator coefficient. We still have to take up the stochastic...

Srmc

The Short Run Cost Curves Firm

Figure 5.8 Relation between Short Run and Long Run Cost Curves for Different Rates of Return than output O1 are greater than long run total cost. Hence, the short run and long run total cost curves are tangent to each other at the output O1. It follows that the long run average cost curve for a particular rate of interest is the 'envelope' of all the short run average cost curves which 'yield' that particular return. It also follows that the short run and the long run marginal cost curves...

The Analysis Of Business Cycles An Aside On Methodology

If we are to analyse the processes of economic life, it is necessary to order the chaotic multiplicity of economic phenomena. This establishment of order in the observations of a particular science is a work of 'art,' of imagination or intuition it involves the imposition of a set of constructions of the scientist upon the raw data. The Marshallian industry is such a construction. As a construction it is logically equivalent to lines sometimes drawn in the proof of a theorem in geometry there...

Notes

Harrod Domar Model Isoquant

See Harrod 1939, 1948 Domar 1947, 1946 and Pilvin 1952 . The Harrod version of the growth model is phrased in terms of the familiar accelerator-multiplier interaction. The Domar version substitutes a capital coefficient a ratio between capital stock and output, a fixed capital coefficient production function for output as a whole for the accelerator coefficient. This makes the Domar accelerator a structural parameter whereas the Harrod accelerator could be a coefficient of induced or...

Introduction The Financial Fragility Hypothesis the offspring of Induced Investment and Business Cycles

For more than four decades Hyman Minsky had painstakingly worked in the areas of economics and finance and in his many writings tried with vision and clarity to find a rational way to link the two. His research program has provided a definitive analysis of the linkage. As most students of his work would argue, he began with Keynes' concern with the volatility of investments, and then recognized how serious the uncertainty of cash flows from investments was since it could lead to serious...