Introduction

Outlined here is the “Keynesian” model that I have used, on and off, since 1967 for teaching third-year undergraduates at the University of Adelaide. The weaknesses of the model are, first, that it follows, until the trade cycle expansions are considered in Appendix 2, the usual textbook treatment of the Keynesian investment demand function in terms of a downward sloping relationship between planned investment expenditure (I) and the rate of interest (r). Tom Asimakopulos (1971) has provided a cogent criticism of this approach, in particular, that it is an unholy mass of ex ante and ex post factors. He also has provided a simple analysis which incorporates the two-sided relationship between investment and profits: the dependence of investment decisions on expected profits, on the one hand, and the dependence of actual (and expected) profits on the level of investment expenditure itself, on the other hand. It is true both to Keynes's own insights and to what actually happens. (I certainly agree with his approach and in a paper published in 1965 (Harcourt, 1965), I incorporated in a very crude way the rudiments of such an analysis.)

Second, the present models incorporate an LM–IS approach, though this is modified in order to take account of the contributions of the Radcliffe Committee (1959) and Gurley and Shaw (1960).