ABSTRACT
We shall assume in this chapter that both foreign trade and the government budget are balanced and that workers do not save. It was shown above in Chapter 5 that given this assumption the level of economic activity is determined by investment. Moreover, it was shown in Chapter 9 that investment is determined, with a certain time lag, by the level of economic activity and the rate of change in this level. It follows that investment at a given time is determined by the level and rate of change in the level of investment at some earlier time. It will be seen below that this provides the basis for an analysis of the dynamic economic process and in particular enables us to show that this process involves cyclical fluctuations.
