European Journal of Economics and Economic Policies: Intervention

Path dependency and the interdependences of demand and supply in macroeconomics

Malcolm Sawyer

Abstract

The paper argues that macroeconomic analysis has to be based on path dependency which is treated as a broader concept than hysteresis. The ways in which path dependency necessarily arises in the context of the dual role of investment on demand and capacity formation are next considered. The effects of demand on the path of the economy are then considered in respect of the operations of the labour market and then technical change. The relationship between the ›short run‹ and the ›long run‹ in the form of the cycle and trend growth are considered leading simple formulations of aspects of such path dependency to postulate the way to consider the growth process.

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