| Sumario: | This article discusses the two-sector aggregative models and the investment demand function. The study alters the H-S model created by economists Dale Henderson and Thomas Sargent to allow for an investment demand function based on costs of adjustment. In analyzing the comparative static results of this model one can determine whether the strange results of the H-S model are due to the assumption of a two-sector production technology or the assumption of a perfect market in existing capital goods. The profit-maximizing subsystem in the H-S model can be solved to yield the price level and the marginal product of capital as functions of the relative price of investment. A general equilibrium occurs when the consumption good, money and investment good markets are in equilibrium. The H-S results seem to imply that the analysis of the effectiveness of fiscal policy in the traditional IS-LM analysis is very sensitive to the assumption of a one-sector production technology. Besides assuming a two-sector production technology, the H-S model also assumes a perfect capital market, where the asset value of capital is always equal to reproduction cost.
|
|---|