ABSTRACT
We shall now illustrate the above theory of the business cycle by a model based on the United States data for the period 1929–1940. This model, however, does not present an exact picture of developments in the United States in the period considered. Since it is based on equations corresponding to those underlying the theory developed in the preceding chapter, the simplifying assumptions introduced there have to be maintained. Thus, we shall continue to assume that the foreign trade and the government budget are always balanced although this was certainly not the case in the United States in the period 1929–1940. We shall also continue to assume that the price index used to deflate investment is identical with that used to deflate gross product of the private sector. Finally, we shall disregard the trend elements in the relevant equations so as to obtain pure cyclical fluctuations.
