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CONSUMPTION AND GROWTH FROM A RICARDIAN PERSPECTIVE *
Author(s) -
Ekinci Nazim Kadri
Publication year - 2009
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.2008.00357.x
Subject(s) - consumption function , economics , consumption (sociology) , marginal propensity to consume , permanent income hypothesis , consumer spending , function (biology) , closure (psychology) , microeconomics , stock (firearms) , keynesian economics , production (economics) , market economy , multiplier (economics) , life cycle hypothesis , recession , mechanical engineering , social science , evolutionary biology , sociology , engineering , biology
A new way of imposing the Ricardian closure is proposed through a dynamic consumption function along Keynesian lines. The dynamic consumption function relates consumption to current income and to the accumulated stock of consumer durables. In this way the dynamics of consumption and effective demand become dependent on consumer spending on durables. Using the dynamic consumption function within a simplified Harrod–Domar growth framework, it is shown that there is no independent consumption function in the long run as the Ricardian closure implies. The long‐run propensity to consume is an equilibrium relation, not a behavioural parameter.