Growth Rate Controlled and Economic Dynamics in a Multisector Model
The previous chapter investigated the relations between rates of inflation, interest and growth within the framework of input-output models with neoclassical production functions and von Neumann systems, respectively. The first two rates are related to monetary terms, while the growth rate is related to the quantitative aspect of the system. Although outputs and prices can be endogenously uniquely determined within the system for appropriately given rates of interest, inflation and growth, not all of the rates can be determined endogenously in either of these models. It is necessary to suggest some mechanism to determine them. As mentioned above, different mechanisms can be proposed because the way in which these rates are decided depends on the “type” of economy. In this chapter, we are especially concerned with centralization and decentralization in a “mixed” economy. The central government’s behavior is assumed to be oriented towards the maximization of a social welfare function which depends on the economic growth rate. For detailed results see Andersson and Zhang (1988a).
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