The Adjustment of Savings to Investment in a Growing Economy
A major issue underlying the differences between what have come to be known as the Neo-Keynesian and the Neo-Classical theories of economic growth is the extent to which, and the mechanisms by which, savings and investment are brought into balance in a growing economy with full employment. To what extent for equilibrium growth must the level of investment be, somehow or another, adjusted to the level of the savings which the community is prepared to make in ‘equilibrium’ conditions? Or may the level of investment be determined independently (by government policy or the animal spirits of the entrepreneurs) with the level of savings adjusting itself to that level of investment? And, given these mechanisms, what will be the effect upon employment, output, growth, and price inflation of a policy which stimulates investment without affecting the citizens’ propensities to save?
KeywordsWage Rate National Income Wage Bill Money Income Proportionate Rate
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