The Keynesian Approach

Abstract

In this chapter we will study the derivation of the investment function following from Keynes’s General Theory. It was clarified and elaborated by Lerner [38] and Witte [51]. The essence of this approach is that rising costs in the capital goods supplying industry provide a determinate macro investment function, although a micro investment function cannot be derived. To return to the format suggested in the Introduction, we have two problems: (a) what is the optimal capital stock K* and (b) how does the actual capital stock K adjust towards the optimal capital stock, i.e. can we say anything about F?