Premium
ENTRY AND EXIT OF FIRMS AND UNDEREMPLOYMENT EQUILIBRIUM
Author(s) -
Ohyama Michihiro
Publication year - 1996
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1996.tb00793.x
Subject(s) - economics , underemployment , imperfect competition , aggregate demand , expansive , productivity , free entry , aggregate supply , wage , monetary economics , general equilibrium theory , microeconomics , macroeconomics , labour economics , monetary policy , unemployment , compressive strength , materials science , composite material
This paper extends the standard Keynesian model of aggregate demand and supply allowing for imperfect competition, variable returns to scale, and entry and exit of firms. It distinguishes three phases of macroeconomic equilibria, stagnant, expansive and contractive, according to whether the number of firms is fixed or endogenously determined by the position of the aggregate demand curve. Using this model we show that a large shift in the aggregate demand affects the structure of the economy irreversibly and that the real wage or labor productivity may move procyclically rather than anticyclically. We also elucidate the asymmetric effects of fiscal and monetary policies on the entry of firms and employment.