KALDOR'
SMODELOFTHETRADECYCLE
Ni
chol
asKal
dorbui
l
tamodeloft
het
radecy
clebasedont
heKey
nesi
an
t
ermi
nol
ogyofsav
ingandi
nvest
ment
.Heshowedt
hatt
hecy
clei
sther
esul
tof
pr
essur
est
hatpusht
heeconomyt
owar
dtheequal
i
tyofex
-ant
e(ant
ici
pat
ed,
ex
pect
edorpl
anned)sav
ingandi
nvest
ment
.Inf
act
,iti
sthedi
ff
erencebet
ween
ex
-ant
esav
ingandi
nvest
mentt
hatl
eadst
oacy
cle.Kal
dorshowst
hest
abi
l
ity
andi
nst
abi
l
itycondi
ti
onsi
nthef
orm ofl
i
neardi
agr
ams,t
hought
hecy
clei
sonl
y
possi
blewhenIandSar
enon-
li
near
.
TakeFi
gur
e(A)and(
B)wher
eIandSar
eequal
att
heequi
l
ibr
ium l
evel
ofi
ncome
Y0 .Buti
neachcaset
her
eisasi
ngl
eequi
l
ibr
ium posi
ti
on.I
nPanel(
A)oft
he
f
igur
ewher
eI>St
her
eisanunst
abl
eequi
l
ibr
ium posi
ti
onbey
ondY0 because
suchasi
tuat
ionwi
l
lleadt
oli
mit
lessexpansi
on,t
oful
lempl
oymentandhy
per
-
i
nfl
ati
on.Ont
heot
herhand,
ifS>I
,itmeansadownwar
dmov
ementt
othel
eftof
Y0 whi
ch wi
l
llead t
o zer
o out
putand empl
oymentand t
o col
l
apse oft
he
1|
M ACRO ECONOM ICS NOTES
, economyasshowni
nPanel
(B)oft
hef
igur
e.
Kal
dordi
scar
dsl
i
nearsav
ingandi
nvest
mentf
unct
ionsbecauset
heyf
ail
to
pr
oduceacy
cle.I
nst
ead,beadopt
snon-
li
nearsav
ingandi
nvest
mentf
unct
ions.
Anon-
li
neari
nvest
mentf
unct
ionIi
sshowni
nFi
gur
e.
As t
he economy mov
es i
ntot
he expansi
on phase,shown by t
he
mov
ementf
rom t
hel
eftal
ongt
heIcur
ve,t
hecur
vei
sal
mostf
lat
.Itmeanst
hat
t
her
eisexcesscapaci
tyatal
owl
evelofi
ncomeandt
heneti
nvest
menti
szer
o.
But“
whenexpansi
onget
sunderway
,thenegat
iveef
fectofaccumul
atedcapi
tal
i
samor
epower
fuli
nfl
uencef
ori
nvest
mentdeci
sionst
hant
hehi
gherl
evel
sof
out
putandpr
ofi
t.I
ntheopposi
tecaseofahi
ghl
evelofi
ncomewhent
he
economymov
esi
ntot
hecont
ract
ionphase,t
heIcur
vei
sagai
nfl
atandt
henet
i
nvest
menti
ssmal
l“becauser
isi
ngcost
sofconst
ruct
ion,i
ncr
easi
ngcost
sand
i
ncr
easi
ngdi
ff
icul
tyofbor
rowi
ngwi
l
ldi
ssuadeent
repr
eneur
sfr
om expandi
ng
st
il
lfast
er.
”Thi
ssl
owsdownt
her
ateofi
ncr
easei
nout
put
.Itmeanst
hatt
he
ex
ist
ingcapi
talst
ockandt
hecapaci
tyar
emor
ethant
hecur
rentout
put
.Thi
s
2|
M ACRO ECONOM ICS NOTES
SMODELOFTHETRADECYCLE
Ni
chol
asKal
dorbui
l
tamodeloft
het
radecy
clebasedont
heKey
nesi
an
t
ermi
nol
ogyofsav
ingandi
nvest
ment
.Heshowedt
hatt
hecy
clei
sther
esul
tof
pr
essur
est
hatpusht
heeconomyt
owar
dtheequal
i
tyofex
-ant
e(ant
ici
pat
ed,
ex
pect
edorpl
anned)sav
ingandi
nvest
ment
.Inf
act
,iti
sthedi
ff
erencebet
ween
ex
-ant
esav
ingandi
nvest
mentt
hatl
eadst
oacy
cle.Kal
dorshowst
hest
abi
l
ity
andi
nst
abi
l
itycondi
ti
onsi
nthef
orm ofl
i
neardi
agr
ams,t
hought
hecy
clei
sonl
y
possi
blewhenIandSar
enon-
li
near
.
TakeFi
gur
e(A)and(
B)wher
eIandSar
eequal
att
heequi
l
ibr
ium l
evel
ofi
ncome
Y0 .Buti
neachcaset
her
eisasi
ngl
eequi
l
ibr
ium posi
ti
on.I
nPanel(
A)oft
he
f
igur
ewher
eI>St
her
eisanunst
abl
eequi
l
ibr
ium posi
ti
onbey
ondY0 because
suchasi
tuat
ionwi
l
lleadt
oli
mit
lessexpansi
on,t
oful
lempl
oymentandhy
per
-
i
nfl
ati
on.Ont
heot
herhand,
ifS>I
,itmeansadownwar
dmov
ementt
othel
eftof
Y0 whi
ch wi
l
llead t
o zer
o out
putand empl
oymentand t
o col
l
apse oft
he
1|
M ACRO ECONOM ICS NOTES
, economyasshowni
nPanel
(B)oft
hef
igur
e.
Kal
dordi
scar
dsl
i
nearsav
ingandi
nvest
mentf
unct
ionsbecauset
heyf
ail
to
pr
oduceacy
cle.I
nst
ead,beadopt
snon-
li
nearsav
ingandi
nvest
mentf
unct
ions.
Anon-
li
neari
nvest
mentf
unct
ionIi
sshowni
nFi
gur
e.
As t
he economy mov
es i
ntot
he expansi
on phase,shown by t
he
mov
ementf
rom t
hel
eftal
ongt
heIcur
ve,t
hecur
vei
sal
mostf
lat
.Itmeanst
hat
t
her
eisexcesscapaci
tyatal
owl
evelofi
ncomeandt
heneti
nvest
menti
szer
o.
But“
whenexpansi
onget
sunderway
,thenegat
iveef
fectofaccumul
atedcapi
tal
i
samor
epower
fuli
nfl
uencef
ori
nvest
mentdeci
sionst
hant
hehi
gherl
evel
sof
out
putandpr
ofi
t.I
ntheopposi
tecaseofahi
ghl
evelofi
ncomewhent
he
economymov
esi
ntot
hecont
ract
ionphase,t
heIcur
vei
sagai
nfl
atandt
henet
i
nvest
menti
ssmal
l“becauser
isi
ngcost
sofconst
ruct
ion,i
ncr
easi
ngcost
sand
i
ncr
easi
ngdi
ff
icul
tyofbor
rowi
ngwi
l
ldi
ssuadeent
repr
eneur
sfr
om expandi
ng
st
il
lfast
er.
”Thi
ssl
owsdownt
her
ateofi
ncr
easei
nout
put
.Itmeanst
hatt
he
ex
ist
ingcapi
talst
ockandt
hecapaci
tyar
emor
ethant
hecur
rentout
put
.Thi
s
2|
M ACRO ECONOM ICS NOTES
