The Relationship between Actual Growth and Equilibrium Growth
Nothing was said in Part II of this book about the determination of the economy’s level of output in the short period, for it was taken for granted that full employment and normal-capacity working would be maintained at all times. With continuous normal-capacity working, it could be assumed that entrepreneurs had a clear expected rate of profit to base their decisions on, and that this corresponded to the actual achieved rate of return on capital. Their investment depended solely on this (and its relationship to the equilibrium rate of interest), and it was assumed that full-employment saving automatically corresponded to investment, thus determined.
KeywordsCapital Stock Capacity Working Full Employment Excess Capacity Equilibrium Rate
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