Question

Explain Kalecki’s business cycle theory. What is for Kalecki the ‘tragedy of investment’?

Explain Kalecki’s business cycle theory. What is for Kalecki the ‘tragedy of investment’?

Homework Answers

Answer #1
  • The kalecki business cycle theory is an internal theory
  • This business cycle is above all a process generated by the internal strengths of the economy
  • Kalecki created a business cycle model which is a macro economic model for cyclic fluctuations of economic investments
  • Which is the aggregate savings of Enterprises
  • He defined the aggregate profitability in expected future period as a ratio between total gross profitability and the existing capital stock
  • By the well known statement of launching "the tragedy of investments" he meant that when effective investments has fallen below the level of depreciation, then the total capital stock will fall, which halts the decline in profitability and induces renewed growth in investment spending which leads into a cyclic phase of economic recovery.
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