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Almost every developed country experiences seriousenlargement of the scale of government, specifically the expansion of fiscal deficits.We inquire why such a phenomenon is so prominent based on a Keynesian growthmodel entirely compatible with a standard neoclassical microeconomics. Thecost-minimizing investment plays a key role. Whenever the demand that each firmfaces is constrained by the effective demand such case includes the situation ofmonopolistic competition, a firm strives to raise the productivity of laborand save its production cost. Such a process incessantly continues even if theeffective demand is kept intact. It also implies that the unemployment wouldtend to be unbounded because the labor productivity improves under the constanteffective demand. As such, a ceaseless expansionary aggregate demand policy isinevitably required for sustaining explosive potentials of production.

KEYWORDS

Endogenous Sustainability of Economic Growth; Accumulation of Fiscal Deficits; Cost-Reduction Investment; Principle of Effective Demand

Cite this paper

M. Otaki -On the Endogenous Sustainability of Economic Growth: Why Is the Scale of Government Enlarged?,- Theoretical Economics Letters, Vol. 3 No. 3, 2013, pp. 159-163. doi: 10.4236-tel.2013.33026.





Author: Masayuki Otaki

Source: http://www.scirp.org/



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