ABSTRACT
There have been many responses to the economic theory of Keynes's General Theory but two of the most influential have certainly been Hicks's IS/LM interpretation of that theory and Harrod's dynamic extension to take account of the capacity creating effects of net investment. 1 We shall not be concerned here with whether the IS/LM analysis provided a faithful rendering of the General Theory or whether it represented Hicks's own view of macroeconomic theory. Rather, taking it as a fact that IS/LM analysis has been, and still is, widely used, we seek to show how one flaw may be removed from that analysis by recognition of Harrod's fundamental insight into the requirements of macroeconomic equilibrium.
