chapter  10
Integrating macromodels of employment, price and inventory dynamics
Pages 32

Aggregate demand is based on differential saving habits of households, an investment function which depends on profit rate differentials and the degree of capacity utilization of firms, and on government’s demand for goods. Labor force growth is driven exogenously, capital stock growth is determined by planned investment and the money growth rate is set exogenously by the monetary authority. Inflation is determined in a demand-pull and cost-push fashion and it operates in a climate of expected inflation – both backward-and forward-looking – that adds to its momentum.