A Model of the Trade Cycle Author(s): Nicholas Kaldor Source: The ...

80 TRE ECONOMIC JOURNAL [MARCHthe equilibrium point 1>8, and thus activity tends to expand,below it S >1, and hence it tends to contract. If the Sand 1functions were of this character, the economic system wouldalways be rushing either towards a state of hyper-inflation withfull employment, or towards a state of complete collapse withzero employment, with no resting-place in between. Sincerecorded experience does not bear out such dangerous instabilities,this possibility can be dismissed.yoFIG. l.x(ii) ~~ exceeds ~~, in which case, as shown in Fig. 2, therewill be a single position of stable equilibrium. (This, I believe,is the assumption implied in Mr. Keynes' theory of employment.)If the economic system were of this nature, ,any disturbance,originating either on the investment side or on the savings side,yso s FIG. 2.xwould be followed by the re-establishment of a new equilibrium,with a stable level of activity.l Hence this assumption fails in theopposite direction: it assumes more stability than the real worldappears, in fact, to ,possesso AIso, if there is any justification inthe contention of the "accelerationists," the possibility of ~~1 Except in so far as the existence of time.lags of adjustment might prevent,on certain assumptions, the new equilibrium from being reached. Cf. Appendixbelow.