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The aim of this paper is threefold. First, it develops a generalized savings function which explicitly takes into account the government’s budget constraint properly specified. Second, it reexamines the “Cambridge Theorem” when the savings functions are properly specified. And, finally, it proposes a way to explicitly model the RET and shows how it would affect the steady-state rate of profit and what this would be.

Cambridge Theorem, Ricardian Equivalence and Government Activity / Cambridge Theorem, ricardianische Äquivalenz und staatliches Handeln