ECONOMICS Chapter Notes - Chapter CHAPTER 1: Nicholas Kaldor, Mechanical Equilibrium, Order Of Merit
9 Dec 2021
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Nicholas kaldor built a model of the trade cycle based on the keynesian terminology of saving and investment. He showed that the cycle is the result of pressures that push the economy toward the equality of ex-ante (anticipated, expected or planned) saving and investment. In fact, it is the difference between ex-ante saving and investment that leads to a cycle. Kaldor shows the stability and instability conditions in the form of linear diagrams, though the cycle is only possible when i and s are non-linear. Take figure (a) and (b) where i and s are equal at the equilibrium level of income y0 . But in each case there is a single equilibrium position. In panel (a) of the figure where i>s there is an unstable equilibrium position beyond y0 because such a situation will lead to limitless expansion, to full employment and hyper-inflation.
