The Integration of Simple Growth and Cycle Models
Before examining how the reconciliation process is carried out when yg > Yh, and noting the implications of some reconciliations for the generation of self-sustained growth, it is best if we interpret the switch that occurs when yg > Yh· yg is the result of a self-sustaining demand-generating process based upon the structural characteristics of the economy and some initial conditions. Such an income-generating process once set in motion will not generate actual incomes for all times in the future. The path of actual income will be affected by exogenous events and constraints as well as the structural elements and history embodied in the ruling demand-generating relation. These exogeneous events and constraints are interpreted as determining new initial conditions for a particular demand-determining relation that will determine aggregate demand as long as no external event or constraint prevents this demand income from being realized. Hence whenever Y~ =F yg, Y~ and Y~ _I are new initial conditions for a demand-determining relation. Within our framework this new demand-determining relation will determine actual incomes until the incomes so determined are inconsistent with the supply constraints, for we are ignoring external shocks in this paper.