Abstract
Investment is part of output, and at the same time a means to increase output. This dual relationship was systematically studied, for the first time by Harrod and Domar [23, 16, 24].
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Notes to Chapter V
The use of the same letter for two different variables cannot well be avoided altogether, the number of letters in the alphabet being limited. Hence the letter p, now means production, and also means price in some other sections. It is hoped that confusion is avoided by classifying the material into separate sections.
Harrod and Domar did not in fact use period analysis but used the symbol A for increment, without specifying the precise time pattern.
For a more detailed analysis of the interaction between multiplier models and technical change, see Robinson [44], in particular the note ‘Mr. Harrod’s Dynamics’ on p. 404.
Once one admits substitution either by way of a static differentiable production function, or with a vintage-type production function, the whole problem of full employment will vanish. At any level of savings (investment) there can be full employment given the correct factor proportions.
Their problem is partly due to the specifically Keynesian assumption that the increment in consumption is a fixed fraction of the increment in production. In fact, this fraction can be adjusted by incomes policy and fiscal and other transfer payments.
Figures from the 1967 ‘blue book’ (National Income and Expenditure) [9].
This whole section can be seen as a further elaboration of Sandee’s investment theory. Sandee [45], already mentioned in Section 5.3.
Calculation based on pages 24 and 32 of The National Plan. The order of magnitude of the figures is such that the precise employment figures do not matter much in fact.
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© 1970 Springer Science+Business Media Dordrecht
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Heesterman, A.R.G. (1970). Capital-Output Ratios. In: Forecasting Models for National Economic Planning. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-6214-4_5
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