Which one of the following statements in case of Kaldor model of trade cycle is incorrect ?
In Nicholas Kaldor's (1940) model of the trade cycle: - Kaldor's model is built on Keynes's saving-investment theory of income determination. - Kaldor assumed non-linear…
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Which one of the following statements in case of Kaldor model of trade cycle is incorrect ?
Answer and explanation
Correct answer C
In Nicholas Kaldor's (1940) model of the trade cycle: - Kaldor's model is built on Keynes's saving-investment theory of income determination. - Kaldor assumed non-linear (S-shaped) saving and investment functions with respect to income so that multiple equilibria exist and the system can generate self-sustaining endogenous cycles. - Kaldor used the capital-stock adjustment principle—accumulation of capital during a boom shifts the investment curve downward and the saving curve upward until the economy tips into a contraction, and capital decumulation during a slump reverses the process. - is the incorrect statement: unlike the Samuelson and Hicks trade-cycle models, Kaldor's model does not rely on linear multiplier-accelerator interaction to generate trade cycles.
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UGC NET Economics