Monetary Growth Theory under Perfect and Monopolistic Competitions

DOI: 10.4236/tel.2013.34036   PDF   HTML     2,999 Downloads   4,870 Views   Citations


This article analyzes the difference of properties of economic growth theory between perfect and monopolistic competition. Whether or not capital investment is constrained by effective demand is the crucial factor which characterizes economic growth theories in different degree of competition. Whenever each firm faces a downward sloping demand curve the location of which is determined by the strength of effective demand (i.e., the real GDP), its capital accumulation is inevitably constrained by effective demand. Thus, as far as business environment is kept unchanged, so is capital investment. However, when the good market is perfectly competitive, firms never perceive such demand constraint, thereby capital investment advancing autonomously independent of the phase of business cycle. An important macroeconomic implication of such a difference of the attitude toward capital investment is as follows. When an economy is in perfect competition, capital investment becomes an independent driving force of economic growth as Keynes considers, although it is subject to other independent expenditure (e.g., the government expenditure) and falls into a subsidiary component of effective demand otherwise.

Share and Cite:

M. Otaki and M. Tamura, "Monetary Growth Theory under Perfect and Monopolistic Competitions," Theoretical Economics Letters, Vol. 3 No. 4, 2013, pp. 216-219. doi: 10.4236/tel.2013.34036.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] A. Dixit and R. Pindyck, “Investment under Uncertainty,” Princeton University Press, Princeton, 1994.
[2] F. Smets, “Exporting versus FDI: The Effect of Uncertainty, Irreversibilities, and Strategic Interactions,” Working Paper, Yale University, 1991.
[3] M. Otaki, “On the Endogenous Sustainability of Economic Growth: Why Is the Scale of Government Enlarged?” Theoretical Economics Letters, Vol. 3, No. 3, 2013, pp. 159-163. doi:10.4236/tel.2013.33026
[4] H. Uzawa, “Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth,” Journal of Political Economy, Vol. 77, No. 4, 1969, pp. 628-652. doi:10.1086/259554
[5] M. Otaki, “The Evaluation of Dexterity and a Theory of the Growth of a Firm,” Modern Economy, Vol. 4, No. 3A, 2013, pp. 226-229. doi:10.4236/me.2013.43A025
[6] M. Otaki, “The Dynamically Extended Keynesian Cross and the Welfare-Improving Fiscal Policy,” Economics Letters, Vol. 96, No. 1, 2007, pp. 23-29. doi:10.1016/j.econlet.2006.12.005
[7] D. Acemoglu, “Introduction to Modern Economic Growth,” Princeton University Press, Princeton, 2009.
[8] M. Otaki, “A Welfare Economics Foundation for the Full-Employment Policy,” Economics Letters, Vol. 102, No. 1, 2009, pp. 1-3. doi:10.1016/j.econlet.2008.08.003
[9] M. Otaki, “A Pure Theory of Aggregate Price Determination,” Theoretical Economics Letters, Vol. 1, No. 3, 2011, pp. 122-128. doi:10.4236/tel.2011.13026

comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.