To save or to consume: Linking growth theory with the Keynesian model

Yun Kwong KWOK*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

In the neoclassical growth theory, higher saving rate gives rise to higher output per capita. However, in the Keynesian model, higher saving rate causes lower consumption, which may lead to a recession. Students may ask, "Should we save or should we consume?" In most of the macroeconomics textbooks, economic growth and Keynesian economics are in separate, sometimes unsequential, chapters. The connection between the short run and the long run is not apparent. The author builds a bridge between the neoclassical growth theory and the Keynesian model. He links the Solow diagram and the IS-LM curves and depicts the short-run to long-run transition of the economy after changes in saving and other macroeconomic policies.

Original languageEnglish
Pages (from-to)109-123
Number of pages15
JournalJournal of Economic Education
Volume38
Issue number1
DOIs
Publication statusPublished - Dec 2007

Scopus Subject Areas

  • Education
  • Economics and Econometrics

User-Defined Keywords

  • Keynesian model
  • Medium-run adjustment
  • Neoclassical growth theory

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