INCOME EFFECTS OF INVESTMENTS AND WAGES WHEN SAVING RATES DIFFER

Macroeconomic reasoning often postulates a uniform saving rate. Yet, this approach is only consistent with two special cases: either all households spend the same fraction of earnings or the shares in national income are held constant by assumption. Both premises lead astray. It is shown that fluctuations in investments (as a synonym for autonomous demand) generally affect distribution. In addition, the impacts of a changing wage bill on domestic product ('purchasing power argument') or profits ('wage-profit trade-off') are revealed. Copyright © 2008 The Author. Journal compilation © 2008 Blackwell Publishing Ltd and The University of Manchester.