2016/01/01 by Armon Rezai, Rezai, Armon
Economics, Econometrics and Finance · Social Sciences · #Economic Theory and Policy #Economic theories and models #Political Economy and Marxism
paper · doi:10.57938/88b69f22-646c-488c-ae16-5d53a7e552b0
Aggregate demand is influenced by the functional income distribution of an economy and that of its trading partners. This relationship between income distribution and output is analyzed in a short-run two-country Neo-Kaleckian model. The effects of devaluation and redistribution are discussed in detail. Trade and redistribution within one country interact and output increases or decreases with changes in either depending on the specific distributional and exchange rate movements. The Marshall-Lerner condition is shown to be equivalent to the assumption of expansionary devaluation. If devaluation increases output, national redistribution policy toward wage earners is also more likely to be expansionary. (author's abstract)